FINA Committee Meeting
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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Tuesday, November 16, 1999
The Vice-Chairman (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Good morning. As we are to hear many witnesses this morning and seeing that I'd like to keep to our agenda, I'm calling this meeting to order.
First, I'd like to welcome each and everyone of you to Quebec City. In accordance with its mandate under Standing Order 83(1), the committee resumes its pre-budget consultations.
I would like to welcome the representatives of the Chambre de commerce du Québec, Mr. Michel Audet, the president and Mr. Gaëtan Gagné, the vice-president.
The Front d'action populaire en réaménagement urbain is represented this morning by Mr. François Saillant, coordinator, Ms. Lucie Villeneuve, representative of the Quebec City Comité des citoyens et citoyennes du quartier Saint-Sauveur and Mr. Julien Dallaire, member of the Comité des citoyens et citoyennes du quartier Saint-Sauveur.
The group Valorisation-Recherche Québec is represented by its president and chief executive officer, Mr. Gilbert Drouin.
The Laurentian Bank of Canada is represented by its chief economist Mr. Simon Prévost and its first vice-president, Treasury and Risk Management, Mr. André Dubuc.
Quebec City is represented by the municipal councillor Claude Cantin and development councillor, Louis Méthé.
I think you all know the procedure this committee follows. We first invite the witnesses to make a presentation lasting 10 minutes more or less, which leaves enough time for discussion with the members.
I would invite the representative of the Chambre de commerce du Québec to take the floor. Mr. Audet.
Mr. Michel Audet (President, Chambre de commerce du Québec): Thank you very much, Mr. Chairman.
I would first like to thank your committee from the House of Commons for giving us once again this year the opportunity to make heard our concerns and priorities for the next federal budget.
At the outset, we would point out that the federal government has reestablished its financial balance rather spectacularly. Congratulations are in order. However, we must immediately point out the fact that Canada's tax burden one of the highest amongst industrialized countries.
In our opinion, the weight of taxes on income and productivity is such that it adversely affects the Canadian economy's competitiveness. Taxes are the source of a brain drain and the flight of all those human resources that are so necessary for our economy. This will therefore be the substance of our presentation.
First, we want to look at four themes: reviewing the suggested breakdown of future budget overages; lightening the tax burden of Canadians; limits on spending which should focus more on programs concerned with productivity and economic growth; and finally, debt reduction.
For those who do not know us already, I'd like to say a few words about the Chambre de commerce du Québec. It's a federation of all the 200 Quebec chambers of commerce as well as some 51,000 members who operate some 3,500 businesses. A recent census has shown that these businesses employ almost 800,000 workers. We therefore believe this movement is very representative of the economy's private sector.
Although our brief gives a clear description of the context we work in, I would like to say a few words concerning the present debate. Even though economic growth is rather good at this point, we shouldn't forget the less brilliant part of its history. Our debt unfortunately far too high. The tax burden of Canadians is still too heavy. We believe it is premature to talk about fantastic budget surpluses. As this matter is the subject of public debate, we have no hesitation in getting straight to the point.
In the Speech from the Throne, the government reaffirmed, as though it were dogma, that it wants to use half the surplus to pay down the debt and decrease taxes and use the other half for investments that will respond to Canadians' social and economic needs.
In his update, the Finance Minister stated—and no one has been able to prove otherwise—that the surplus would be about $95 billion over five years. However, we've learned to be worried about very long-term data and that's why we prefer to stick to recommendations for the first two years only. That way, we can use far more trustworthy forecasts. Although, in the past, we've heard about a surplus of $20 or $25 billion over five years, some forecasts turned out to be so far off the mark that we now prefer not to play that little game.
What we're concerned about, more specifically, is that despite the uncertainty concerning these surplus figures, the Speech from the Throne announces that the government will be implementing a series of programs the value of which must reach $47 billion. Some people say that the amount could be even higher. We think the amounts invested in those programs is quite disproportionate and unacceptable.
The Minister of Finance, quite rightly, is setting aside $28 billion to pay down the debt and to see to any contingencies. In our opinion, this is quite a wise decision as we're looking at such a long period.
We recommend that the federal government reverse its priorities and use half of any future surplus to bring down taxes. We recommend that the other half be used to pay down the debt and the increase in uncontrollable expenditures or those expenditures that are really essential to increasing our economic productivity.
We believe that rigorous management of public finances is always proper and that it is even an essential objective to increase productivity.
We would not want to unduly criticize the good ideas contained in the Speech from the Throne, but we don't think this is a good time for the federal government to launch programs that would force us to engage in a series of expenditures year after year. It is also important for the federal government to respect provincial jurisdictions in making its choices.
In the context I have just explained, I'll briefly enumerate those initiatives we think are desirable.
It is undeniable that present public infrastructures—roads, bridges, ports, sewers and water mains—have deteriorated to a point where they are inefficient if not dangerous to public health. We believe the government should invest there as a priority and this would also allow it to increase economic productivity. Those initiatives should be done in co-operation with provincial and local governments as well as the private sector.
Your committee asked us what should be done to facilitate the new economy. We believe that a properly trained labour force is the most important factor leading to an increase in productivity. The decreasing transfers to the provinces for training, more specifically post-secondary education, have hit the universities hard. The transfers to provinces should be adjusted in the area of education while ensuring, of course, that those monies will serve that purpose. I believe the provinces would be ready to make that commitment.
You will understand that because of the nature of our organization, which is present everywhere in Quebec, we're concerned with the impact of certain reorganizations, delocalizings and restructurings at the regional level. It is very important to support local initiatives to stimulate employment in certain regions as was recently done in the Gaspé. Economic Development Canada does play a role at this level and it should be maintained to ensure a supportive partnership to local initiatives.
Despite these numerous recommendations, we wish the government to limit its increase of expenditures based on the rates of inflation and population growth. After all that has been asked of Canadian taxpayers over the past few years, shouldn't they be the main beneficiaries of any future surplus?
That is why we recommend that the government reduce personal income tax as well as making some adjustment to corporate taxes which, in our opinion, should reach at least $10 billion over the next two years. This decrease represents about 5% a year and that is something our public finances can support very well at this point.
An increase in productivity, another important theme, is to be gained through a decrease in taxes. We can discuss this more specifically during the question period, but I would like to point out the fact that the present Canadian tax rate is really not competitive as compared to the U.S.. Whatever may be said at the federal government level, the fact remains that many major businesses are having trouble keeping their labour force and their experts. This situation must be corrected and a very important signal given to that effect in the next budget.
We are aware that the government is being lobbied intensely concerning the next point. In talking about tax reductions, we should also address those people paying taxes. We're not necessarily opposed to programs for redistribution, but we do have a caveat to express concerning any formula resulting in an increase in the redistribution of income to people who don't pay taxes. But if the will is to do so, then let it be done through transfer programs and not tax reduction programs.
As we all know, the marginal tax rate is very high in Canada, much higher than in the U.S., and you get there a lot faster. Even though the government has already done away with the 3% tax, it should also gradually do away with the other 5% surtax that was raised to reduce the deficit and which, in our opinion, has no more raison d'être.
I'll say a few words on corporate taxes. Maybe it's not a very popular subject, but something has to be said about it. Once again, we're competing with the U.S., to be more specific. Our present tax rate is 43.5%, while it's 39% in the U.S.. This gap is detrimental to the Canadian economy and we must proceed with an adjustment to avoid, once again, a shifting of activities and businesses towards the U.S..
Employment insurance is, of course, a matter we come back to every year. As do many others, we believe that the government must keep on showing a will to gradually decrease the contribution rate as was done recently when it decreased it by 15 cents. It should make a commitment to decrease the employment insurance contribution rate to the level that is necessary to fund the plan.
Finally, I'll say a word about the public debt.
Minister Martin points out the importance of the public debt in his update but, in our opinion, doesn't put enough emphasis on the importance of setting objectives for the reduction of this debt. That's why we believe that not only should a part of the unused reserves be set against it, as he said, but there should be a clear mandate to reduce this debt during the coming years. It's the only way to reassure investors and firm up the Canadian dollar in the long term.
In any case, this recommendation was also made to the Quebec government. This recommendation was made to both governments in a joint study and a brief that the Chambre de commerce du Québec prepared together with the order of chartered accountants.
In brief, Mr. Chairman, these are our five recommendations.
- Reverse the order of priorities presently set by the federal government and use half the future surplus to reduce taxes, the other half being shared between debt reduction and an increase in those expenditures essential to increasing our economic productivity;
- Limit the increase of program expenditures to the rates of inflation and population growth;
- Decrease personal and corporate taxes by at least $10 billion over the next two years;
- Continue decreasing employment insurance contributions; and
- Set specific objectives committing the government to decreasing the public debt over the next five years.
Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Audet, for your recommendations. I'm sure our members will be commenting. Thank you very much.
We will now go to the Front d'action populaire en réaménagement urbain.
Mr. François Saillant (Coordinator, Front d'action populaire en réaménagement urbain): Good morning. I believe our brief was circulated to you and you can read it at leisure.
Our viewpoint will be rather different than the one you've just heard. I imagine that has to do with the people we represent. We represent some of our society's poorest members. So we won't be addressing productivity very much in our brief.
FRAPRU is an umbrella organization of 66 groups active in promoting social housing. In the early 90s, FRAPRU opposed the federal government's withdrawing from the development of new social housing programs. At the time, it was explained that this withdrawal was due to the financial situation and the deficit the government had to deal with. This situation has changed because we're now talking about a major surplus. In our minds, it is clear that social housing must be put back on to the agenda.
This past year, a lot of people in Canada have been talking about the problem of homelessness. Clearly, we want to join with them.
A Santé Québec investigation over the past few years has shown that during 1996 alone, 12,700 people were living “without any fixed address” in Montreal. In Quebec, there were 3,500 people without any fixed address during the year. It's scandalous. This is an intolerable scandal in a rich society.
However, we would like to make a distinction. In our opinion, you can't separate the problem of the homeless from that of housing in general. These two matters are very closely linked, in our minds. Trying to address homelessness without addressing the more general problem of housing just leads straight to failure.
Looking at the problem of homelessness in isolation leads to very short-term solutions. It is clear that we need to have enough shelters for the homeless. That said, you can't settle the problem with shelters.
It's a scandal. It's unacceptable that people don't have a roof to sleep under at night. But in my particular case and for FRAPRU, it's also unacceptable that when morning comes you tell someone who spent the night in a shelter: “You have to leave.” A permanent roof is a right that should be accessible to all of our population.
On that, we'll quote Mr. Martin. In 1990, the Liberal Party, as the party members must remember, published a report entitled “Finding Room: Housing Solutions for the Future”. This report said that the homeless are only the most visible manifestation of Canada's housing crisis. Though homelessness affects a relatively small percentage of Canadians, it is a reality which is symptomatic of a broader crisis in the supply of affordable housing.
If, at the time, the Liberal Party could afford the luxury of talking about the housing crisis, we think that they should address it even more today.
We'll only quote a few figures that should be food for thought. In 1990, in Canada, there were 583,000 renting households that paid out over half their income as rent. In 1996, based on the latest census, this figure had increased to 833,000; that's a 43% increase which, in passing, was condemned or at least questioned by the United Nations committee on economic and social and cultural rights.
In Quebec, the number of households paying over 50% of their income for rent has risen by 41%, from 194,000 to 273,000. In our opinion, this is a dramatic situation that must be addressed. It is clear that the worsening housing crisis is directly linked to the fact that renters are getting poorer and have been doing so since the early 1990s.
However, the federal government's withdrawal from social housing is also an issue. If the federal government had just maintained the late-1980s levels for the development of social housing—which were lower than at the beginning—there would now be some 103,000 more social housing units than there are today. That would mean 103,000 fewer households that would be spending between 30% and 50% of their income on rent. There would be fewer homeless people.
Lately, we have been hearing federal ministers sounding like they want to rewrite history. The provinces did not ask the federal government to withdraw from social housing, but the federal government, first the Conservative Party and then the Liberal Party, decided unilaterally to withdraw from social housing. In Quebec, that meant a loss of 30,000 social housing units. There is therefore a need to reinvest in this area. I will now give the floor to Ms. Villeneuve.
Ms. Lucie Villeneuve (representative of the Comité des citoyens et citoyennes du quartier Saint-Sauveur de Québec, Front d'action populaire en réaménagement urbain): We have been hearing over the last little while about economic growth. We have surpluses because there has been an increase in economic growth. Out in society, however, one of the things that we find is that there has been an increase in poverty.
Economic growth has not led to increased incomes for people living in poverty. For those who have found jobs, it has been a good thing. However, the jobs available now are in high technology. These jobs require much greater access to the labour market. But the people that we are working with now often have little education, few skills or training that is not recognized in the labour market. They are increasingly excluded from the labour market. Their numbers have therefore grown.
Many of them are working at minimum-wage jobs, and minimum wage keeps them poor, which means that they often live in housing that is poorly heated. There are more and more housing units that are not heated or that use oil or electric heating, which means that they will have to go into debt. Their housing costs are twice as high owing to heating costs alone. People are therefore facing a major housing problem because their income is going down.
Social assistance benefits have not increased for 10 years. They have stayed the same or even decreased, when inflation is taken into account. A single person who received $500 10 years ago still receives $500, or even $482, once the QST is deducted. The poor have thus not seen any increase.
They have, however, been affected by deficit-cutting measures. They have been affected by that because the provincial government told them it was receiving less money in federal transfers and that social assistance could not be increased. Low-income earners are told that growth will only come through sacrifices in working conditions. People are therefore working harder and harder and making less and less, but the rents are going up rather than down.
People are therefore increasingly in distress. You have heard that there are more and larger food banks out there. Housing conditions are getting worse. Are we going to wait until entire families are in the street? I believe that this is an enormous problem.
People say that Canada is a good place to live. Well, the people that we work with are wondering if it really is a good place to live, since they are freezing or ill and wondering what they are going to do with their children.
The federal government says that it is going to reinvest in reducing poverty, but with the focus on children. Well, children have parents, and these parents also need help. When people have a roof over their head and they can feed their children and dress them, then they have dignity.
Mr. François Saillant: We feel that the obvious priorities for the government should be to reinvest in social programs and public services and to reduce poverty.
Mr. Audet was very clear earlier, when he said that there were people who would not benefit from tax cuts. People who do not pay any income tax would not benefit from these cuts. In my opinion, it would be completely unacceptable for such a large amount of money to not benefit the poorest people in our society in any way. If these people were shown the pile of money but told that it was not for them but for high-income tax payers and that they were too poor to deserve any of it, that would be unacceptable.
The other day, in Quebec City, someone appearing before a parliamentary committee talked about fiscal apartheid. I believe that that term could be applied very well to this type of proposal. We feel that reinvestment in social programs and social housing is what is needed.
I think that the committee has heard a number of times about what is being called the 1% solution, which has been proposed by groups in various areas of the country. We endorsed that demand, that is, that the total budget for housing, which is at around 1% of federal spending right now, should be increased to 2%, which would mean an investment of nearly $2 billion.
We feel that this investment is warranted because of how serious the housing and homelessness situation has become. This would also respond to the recommendation made at the international level by the UN Committee on Economic, Social and Cultural Rights.
Some people might say that $2 billion is a lot of money, but we need to keep in mind that we are talking about projected budget surpluses of up to $95 billion. In those terms, $2 billion is a relatively small amount.
We should also bear in mind, and this is what I would like to emphasize, that we are talking about the right of all people to have a roof over their head, to not have to spend half or more of their income to that end, and to have enough money to meet their other basic needs, that is, to feed themselves and feed their children properly and have proper clothing. It seems to me that these rights should take priority over everything else. It is fine to talk about tax cuts, but less us first make sure that everyone has a place to live and can put food on the table.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much. I would now ask Mr. Drouin to make his presentation. Mr. Drouin, welcome.
Mr. Gilbert Drouin (Chief Executive Officer, Valorisation-Recherche Québec): Good morning and thank you for giving me this opportunity to present our views to the committee.
I represent Valorisation-Recherche Québec, an organization that was established by the Quebec government in the spring and which was mandated to further or market university research and, in addition, to promote the conversion of university research. This organization is very young and depends a great deal on upstream research.
I also sit on the board of directors for NSERC, the Natural Sciences and Engineering Research Council, which is the largest research granting council, and therefore I will be reflecting these views as I talk to you. Like Mr. Audet, I will talk about productivity and manpower, which are two extremely important aspects.
I would remind you that NSERC has three main fields of activity: research conducted by university professors; the training of researchers and highly skilled manpower; and, finally, research conducted in partnership. These three components are complementary and form the basis for productivity and innovation in Canada.
We're told that about 3% of the world's research is conducted in Canada. This is perhaps not very high, but we must remember that this gives us access to approximately 100% of the knowledge at the international level, which is an extremely important aspect.
The research process is designed to generate knowledge that is pooled, and in order to draw from this pool, we have to know the value of such knowledge. Consequently, the first objective is to produce research and the second one is to train people who are able to interact and understand the value of such knowledge: these are the students.
The third component is research in partnership, an extremely important sector bringing together both the user and the generator of such knowledge. For every dollar that NSERC invests, business puts in $1.70. Consequently, the leverage is significant.
Over the years, we have set up 200 industrial chairs. The industrial chairs are five-year programs whereby a company or companies associate with a university in order to conduct a significant research program.
Research partnership is extremely important, as evidenced as well in new funding mechanisms that the federal government has established, particularly the Canada Foundation for Innovation, which has been given a $300 million budget to invest in research infrastructure. The last budget talked about 1,200 chairs of excellence created throughout Canada. All of this will serve to increase Canada's research capacity, but it will also create pressure on training and on research requirements in the universities.
Finally, I would like to draw your attention to two sectors which form the basis for the knowledge-based society or economy. I refer here to the new information technologies. I'm certainly not the first person who has talked to you about this aspect, because you have doubtless heard people talk about this issue throughout Canada. We need to double the student and professor population in this sector if we want to be able to keep up. More or less the same thing is happening in the pharmacology sector in Montreal. Two studies conducted in Montreal by the Montréal Technovision group have produced a great deal of insight into the matter of training for these two sectors in particular.
I would like to conclude by saying that all of this investment made by the Canada Foundation for Innovation and the industrial chairs are going to put tremendous pressure on university infrastructures, which will no longer be able to support the weight of this research. We are, therefore, going to have to do as Mr. Audet said, namely, we're going to have to transfer money to the provinces in order to support research. This concludes my presentation.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Drouin.
We will now be hearing from Mr. Prévost or Mr. Dubuc from the Laurentian Bank of Canada.
Mr. André Dubuc (First Vice-President, Treasury and Risk Management, Laurentian Bank of Canada): My name is André Dubuc and I'm a member of the Laurentian Bank executive. The Bank seldom gives its opinion on questions of public interest, but all members of the Bank executive felt that this brief should talk about the need to reduce taxes.
We strongly believe that the current Canadian tax system discourages the incentive to work, encourages people to work in the black market, hurts investment and no doubt contributes to the brain drain as well.
If, however, we were to reduce the tax burden significantly, we would be able to put things back into balance and rectify the insidious effect of taxation that has been too high. We would also generate economic growth.
Because of its nature and history, the Bank is very close to individuals and has noticed that there has been very little growth in personal disposable income over the past 20 years. Furthermore, the Bank has noted that the savings rate has been very low, currently sitting at less than 1%. Economic growth is jeopardized by excessive taxation which is now forcing individuals to draw on their savings in order to finance their consumption.
We have, therefore, suggested certain measures for reducing taxes. Simon will provide you with an overview of those measures.
Mr. Simon Prévost (Chief Economist, Laurentian Bank of Canada): Thank you. Before I delve into the specific measures of our proposal, I would like to provide you with some statistics which say a great deal about the high tax burden.
First of all, no matter how you look at the tax burden, it has grown continuously in Canada over the past 20 and even in the past 5 years.
You will recall that, in 1993-94, the deficit sat at $42 billion and it was at this point that we decided to reduce the deficit and to try and balance the budget. During this period, we talked a great deal about reducing program financing and cutting back on transfers to the provinces. We also talked about using the employment insurance surplus in order to pay down the deficit. What we did not talk about, however, was the fact that the government, during this period, increased the tax burden by 10%. The government continues to dig further into the pockets of the taxpayers while at the same time cutting back. Indeed, we are talking about an additional tax burden of more than $10 billion that was created while waging war against the deficit, during the years 1993-94 to 1997-98, when we balanced the budget.
If we take a look at what happened over a longer period, we can also see that, since 1980, total taxes, namely, personal income tax, corporate tax and indirect tax, increased at a pace that was 25% faster than the GDP. This is another way of pointing out that the tax grab in the economy, in proportion to the size of the economy, grew significantly during these years.
Now, in addition to that, what else did we notice? Who, indeed, bore the cost of this increased tax burden? Individuals primarily bore the brunt of this burden. Take, for instance, the weak growth of disposable personal income after taxation per capita, which Mr. Dubuc referred to a few moments ago, it has practically been stagnating for the past 20 years. Indeed, growth has been very weak: 20% in 20 years, which falls behind the growth of the economy by a long shot. So, people have been getting poorer.
Another interesting aspect pertains to the proportion of personal income tax in total taxes collected in Canada. Let's take a look at how this component has evolved.
It's interesting that, since 1980, the figures for personal income tax as a percentage of government revenues have increased by approximately 25%. However, the figures for corporate income tax expressed as a percentage of total government revenues have dropped by 30% during this period. As for indirect taxes, they have declined by 16%. Therefore, in reality, there's only one group that is paying a greater relative share, and that is individuals.
We talked about the importance of lightening the tax burden. I've given you some figures on this tax burden issue. We do not advocate cuts for ideological reasons, but because, at this stage, there is a pressing economic need for them.
We heard not long ago about the fight against poverty. It's not something that can be done in isolation. Government priorities can always be debated, but in order to make headway in the fight against poverty and ensure long-term economic growth, we have to settle the basic problems in the income tax structure. Mr. Dubuc mentioned the negative effects that they have on the economy.
We are now dealing with a budget surplus. The deficit has been eliminated and there will be surpluses. There is certainly no need to keep the tax burden at its current level.
Since we should at this time be trying to put some fairness back into our tax structure and put the economy back on an even keel, we believe that income taxes should be cut, but only personal income taxes. That's where the need is greatest.
We are therefore proposing four measures. The first is full indexing of all tax parameters. Last year the government announced indexing of the basic personal exemption. That's a step in the right direction. What was the impact of this from 1992 to 1999? It meant that low income earners ended up paying income tax.
Second, since the tax brackets were not indexed either, people who had very small increases in their income ended up paying more income tax even though, for all useful purposes, they were not really any richer. Even though their income increased more slowly than inflation, they ended up having to pay more income tax the following year. This is a real problem, and so it is absolutely essential to index all the tax parameters. If the government were to adopt only one of the measures that we are putting forward, this should be the one it picks.
With regard to employment insurance, we think that the government is on track but should be a little more aggressive. We are therefore proposing a further reduction of 15 cents in employment insurance premiums each year for the next three years.
Furthermore, we would like to see marginal tax rates lowered by about 5%.
Finally, the last measure that we are proposing is the total elimination of the 5% surtax, which is no longer appropriate now that we have budget surpluses.
These measures would cost approximately $30 billion over three years. You will agree that, although this would appear to be a substantial sum, it is affordable, even given a conservative estimate of future surpluses.
In closing, I would like to remind you that the Bank is not focussing on tax cuts for ideological reasons, but for the sake of fairness and long-term economic growth. In the end, if the anticipated surpluses materialize, the government, if it uses them wisely, will have a golden opportunity to put the economy on a more solid footing for future growth, for the benefit of coming generations.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
I would now like to welcome Mr. Claude Cantin, from Quebec City, and give the floor to him.
Mr. Claude Cantin (Municipal Councillor, Quebec City): Thank you very much, Mr. Chairman.
I thank the Standing Committee on Finance for holding hearings near Quebec City so that it can read the pulse of the region and its citizens.
As you know, Quebec City is the capital of Quebec, but it is a fairly small city. We have a population of 170,000 and are located at the centre of a built-up area on the north shore of the St. Lawrence River with a population of one million; as for the south shore, it has a population of 640,000.
Since the members of the finance committee are federal MPs and some of them are less familiar with municipal finances—and I'm not referring here to you, Mr. Chairman—I'd like to remind them that, in Quebec, municipalities draw 85% of their revenue from property taxes, that is, taxes levied on land and buildings. Consequently, every year, year after year, property taxes have to carry their share of the load. Although there is talk of tax cuts at the federal and provincial levels, we are not ready for them at the municipal level, especially since federal and provincial transfers have meant many additional expenses for us.
I sit on the city's executive committee and I'm the deputy mayor of Quebec City, but I'm also the outgoing president of the Federation of Canadian Municipalities. It will therefore come as no surprise to you that we support the federal-provincial-municipal infrastructure program advocated by the FCM.
Quebec City has been active in the FCM for many years. Its mayors have been its presidents, and I was the FCM president last year.
We do not believe that the federal-provincial-municipal infrastructure program, a program with fixed financial and time limits, would result in an unacceptable additional burden for federal and provincial governments, since the assessment of the previous infrastructure program demonstrated that the federal and provincial governments recovered nearly all or, at least, a very great part of the money they had invested. Furthermore, it brought improvements to municipal infrastructures and created jobs, which also has a major social impact.
If we understand correctly, the next federal-provincial-municipal infrastructure program is not supposed to have the same characteristics as the previous one, which focussed almost solely on hard municipal infrastructure. The next program is to be focussed on quality of life and social infrastructure.
I'd like to touch on two specific cases. In the first place, there is the question of housing, which was raised by our friends from FRAPRU, as well as by many other organizations, for example, the City of Toronto and the Federation of Canadian Municipalities. Social housing is a real challenge facing many cities, and particularly cities at the centre of urban areas. As the representatives of Laurentian Bank explained a few minutes ago, many Canadians have become poorer in real terms over the last 10 years. This clearly has had an effect on their ability to afford quality housing. The percentage of citizens who spend over 30% of their income on housing is constantly rising. In some areas, this percentage is approximately 50%, which means that these people are forced to spend less on other things, on clothing, but also on food, and we are seeing increasing evidence of this in schools and at food banks.
All of this leads us to urge the federal government to start investing again in social housing. Cities have already done their part and they will also have to assume some of the load in the future. It's not shared properly among cities, but that's a problem that we will settle among ourselves, that we won't ask the federal government to settle; it will be settled at the provincial level. I think that cities are willing to do their part for social housing, either through the RRAP or by creating new low-cost housing, for which they assume part of the deficit.
In our brief, we urge the city and the federal government to return to funding new social housing, and to increase support for residential renovations, through the RRAP program that we mentioned earlier, and, as well, to become involved in revitalizing the downtown core.
The second element that I would like to discuss is also contained in the FCM report. It involves transportation. As you know, the Canadian government made some environmental commitments in Kyoto; it undertook to reduce greenhouse gases. We know that 50% of greenhouse gases produced in this country are the result of vehicle emissions. Of course, there are other factors such as heating, etc., but on that point, Quebec counts on hydroelectric power, which is non-polluting and does not produce greenhouse gases, and therefore we might be ahead of the game. However, we have not made much progress in the area of urban transit. In fact, I think we need to invest in that area.
The FCM has already offered the federal government its co-operation in implementing more efficient and more widely used urban transit systems, but, as I explained earlier, since funding for cities and therefore urban transit depends on property taxes, it is very difficult for Canadian cities to invest in modern, safe, and rapid urban transit systems that would attract riders.
As you may know, Canada is the only OECD country that does not have an official urban transit policy. The only urban transit policy that we have can be summarized as follows: when provincial governments have a little extra money, they invest in urban transit and when they don't, then they stop investing. We don't have a set objective. The Canadian government says that it's up to the provinces, and the provincial governments say that they have other problems.
If we all want to meet the objectives that were set at Kyoto, but also give our cities good quality infrastructures, that will allow for economic development... It is becoming more and more apparent that economic development is not something that sprouts from the middle of a field; it develops in a region where there are solid infrastructures, where we find good quality social infrastructures, where there's social peace and where everybody gets along well. All of that contributes to increasing Canada's competitiveness in pursuing its economic development. We won't achieve our goals if we devote all our attention to only one aspect of the problem, for example cutting corporate or personal income tax.
I think it would be better to invest part of the federal surplus in a well-structured infrastructure program rather than to cut corporate taxes which, as the Laurentian Bank said earlier, are contributing less and less to the federal and provincial coffers.
Mr. Chairman, I will close in once again urging the government to consider a federal-provincial-municipal infrastructure program. Our municipal affairs minister in Quebec, Ms. Harel, who is also responsible for seniors, is already in agreement; she is also responsible for program approval. In a letter dated November 5, she said that she was in favour of this program.
I know that the federal government will not implement something if it does not have the approval of all the provinces. I can already tell you that Quebec does approve. I beg you once again to reestablish this program. It is a relatively inexpensive program that has the advantage of improving our infrastructures as well as our competitiveness. It also helps to create jobs, which is not something to sneeze at.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Cantin.
We have 40 minutes, colleagues. Each one of you will have seven minutes. I would ask you to be brief so that we can have a better dialogue with our guests. Thank you.
Mr. Paul Forseth, from the Reform Party, welcome.
Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much.
It's an honour to be here, as a resident of New Westminster, British Columbia, on the west coast. In the city I come from, the earliest individuals came to that area in 1858 with the gold rush. Yet I come from that development to a city here that by 1858 already had a fairly sophisticated culture and society—looking at the differences from two different coasts.
Yet when I listen to some of the testimony and advice today, I hear a lot of things that were very familiar to me. They are the kinds of the things the official opposition has been representing in Parliament, especially and significantly since 1997. We have been championing tax relief as the best way to help those at the bottom level of society, who need social housing and other social services.
I believe it's a fundamental mistake to think tax cuts don't benefit those who do not pay taxes. Tax cuts are perhaps the best way we can get at this very difficult problem that all western societies seem to have to deal with, of the homeless and the dispossessed. How do you provide the revenue and wealth to pay for the social programs we want?
When we look at the specific individuals who are homeless, case by case, some have low skills or are mentally disordered, as our presenters have described. They're individuals who are not able to catch on to the economy, for one reason or another. We then look at the social services that are there to provide for them.
One of the failures across Canada, for instance, is the lack of psychiatric boarding homes, detox facilities, and various facilities for substance abuse. They are all expensive programs to run, and when you have an economy that can't produce the wealth to pay for them, those poor people are not being provided for.
I would just like to remind everyone—especially those from the Chamber of Commerce and the Laurentian Bank—that what you have recommended basically fits very well within what the Reform Party, the official opposition, has been advocating in Parliament. Often it comes down to a matter of evaluating who you really trust in your community to be able to deliver those programs and that particular economic vision in the future.
The Vice-Chair (Mr. Nick Discepola): If you want to get an answer, I'd suggest that the seven minutes include your preamble.
Mr. Paul Forseth: All right. Both of you touched very briefly on the issue of debt retirement itself. Could you perhaps expand on how necessary it is to have a clear plan of debt reduction?
The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Forseth. Who would like to answer?
Mr. Audet, I believe this is of interest to you.
Mr. Michel Audet: Thank you, Mr. Chairman. We noted that in Minister Martin's plan, and I believe this is wise, there is always an amount set aside for contingencies, an amount which, if it is not used, will go to pay down the debt. Over the past few years, this has allowed for the repayment of a few billion dollars.
Now that the government has a little more leeway, we would like it to determine in advance a minimal amount that would go to repaying the debt, a set figure that could not be changed. We would like to ensure that there would not be a possibility of spending that money elsewhere, as is the case now, where money can be used for unforeseen circumstances. You know that in politics, there is always an opportunity to spend money.
Therefore, we would suggest a set annual amount. I think that this would send a very clear and positive signal to international markets about Canada's intention to reduce not only its debt in proportion to the GDP and in absolute terms, but also the debt burden as it affects total expenditures.
The Vice-Chairman (Mr. Nick Discepola): Thank you.
Mr. Simon Prévost: That is where we differ. I think we must come back to the basic concept of the debt-to-GDP ratio. Therefore, I don't think it is important to reduce the debt in absolute terms. What counts is our capacity to pay the interest on the debt.
We keep coming back to the debt-to-GDP ratio because, realistically speaking, the GDP represents the revenue for the entire country. What is important is the proportion of the debt as compared to what we earn. Moreover, when you go to a financial institution to take out a loan, they are only interested in how much you make and what debts you have.
Therefore, I think it is important to balance the budget in a way that would prevent the debt from increasing in absolute terms. We must look to the denominator in this ratio, that is the GDP, to ensure that it will grow as quickly as possible.
That is why we are advocating tax reduction. I would say that as an extreme case, the use of the reserve for contingency purposes would not be a problem. I think, though, that it would be better to set a little extra aside to ensure a greater tax cut. And if we really don't want to reduce taxes any further, I think that at this point, we should be thinking about increasing expenditures instead of attacking the debt directly.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
Mr. Forseth, you have one minute left.
Mr. Paul Forseth: No, I think I'll leave it at that.
The Vice-Chairman (Mr. Nick Discepola): What discipline! I'm really impressed this morning.
Mr. Loubier, please.
Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Thank you, Mr. Chairman.
Welcome to the finance committee. Mr. Audet, you emphasized debt reduction. What do you think would be the ideal rate of debt repayment and debt-to-GDP ratio?
Mr. Michel Audet: We didn't want to state an amount. In the document by the Minister of Finance, we see graphs that show that Canada has the highest debt in proportion to the gross domestic product, among the G-7 countries, after Italy, I believe, as our colleagues from the Bank have stated.
We have the advantage of benefitting from lower interest rates at this time. However, for reasons that Canada cannot control, as has already been the case in the past, if the interest rates were to rise, all of the wonderful figures that we have advanced would be completely out of step and the expected surpluses would simply disappear. So we must be concerned about this debt.
We are not saying that we have to devote most of the surplus to repaying it, but we must do more than to simply repay part of what has not been spent. In the final analysis, it seems like a secondary objective. We feel that a clear signal must be sent.
We agree with our colleagues from the Bank when they say that the debt should be reduced in proportion to the GDP, but we also think that the Canadian government, since it does have a surplus... It would be another matter entirely if there were a deficit. But we have a surplus and we should spend a few billion dollars per year to repay the debt, as we have begun to do, but in a decisive way, while stating this clearly to the Canadian public.
Indeed, I'm convinced that this is what is being done, but that it is being kept under wraps. Why not say something? When an individual is in debt, he has to pay the money back. I think that a government must also attempt to reduce its debt, not necessarily back to zero, but in a proportion comparable to that of its competitors, which is not the case at this time.
Mr. Yvan Loubier: Mr. Prévost, I have no problem with what you are saying when it applies to bank loans. However, I do find it troublesome when we deal with short and long-term repayment. It costs the federal government $40 billion a year to service this debt. The money used to pay down the debt on an annual basis means money that cannot be spent elsewhere that year. What do you have to say about that?
Mr. Simon Prévost: By reducing the debt directly, you are taking money that you won't have to spend elsewhere. Therefore, whether it be to pay the interest or pay down the debt, it is basically one and the same.
We should seek to determine the proportion of interest for each dollar in tax revenue. The debt charges are about $40 billion. If the debt does not increase, that amount will remain about the same. The cost of this debt represents a little over 30 cents on every dollar earned. If we ensure that the amount remains around 40 and a few billion dollars, because we don't foresee, at least in the short term, any dramatic rise in interest rates, and if we don't increase the debt, and increase revenue by creating economic growth, then the proportion of debt charges to dollar earned by the federal government will automatically drop.
With that in mind, I would say that the concept of the debt-to-GDP ratio is truly central. It's the capacity to pay which is important, and this will increase with economic growth.
Mr. Yvan Loubier: Do you think that the federal government should have a closer look at public finance management? We might have forgotten, over the past 30 or 35 years of repeat deficits, that a dollar invested in a given area does not have the same impact as a dollar invested elsewhere. For example, the multiplying effects of an investment in social housing or in education might be greater than the money invested to pay down the debt.
Mr. Simon Prévost: Of course, the government could undertake some calculations to determine the compounding effects. We might even argue that spending on concrete or asphalt produces, in the short term, more economic growth than a cut in taxes. Personally, I think this is a rather useless discussion at this point, in view of the tax burden affecting all Canadians.
Once this burden has been reduced so that it compares with those of our economic competitors, once it has taken on more reasonable dimensions, then we can examine the impacts of various investments, be it in social programs, in bricks and mortar, or in tax reduction and debt repayment.
It is clear that debt reduction will not bring about economic growth, unless the debt is at a level that would no longer allow us to finance it at internationally attractive rates. In the context... [Editor's Note: Technical difficulties]
Mr. Yvan Loubier: That goes a little beyond the subject of these consultations, but I would like to ask Mr. Gagné a question about a provincially regulated insurance company that was prevented, two years ago, from acquiring a block of insurance policies from a federally regulated company. Has any progress been made since the Minister of Finance undertook to amend the Act that prevents you from moving forward?
Mr. Gaëtan Gagné (Vice-President, Quebec Chamber of Commerce): I will answer your question and then I will come back to the budget.
Officials are still negotiating Bill C-82, which at the time was supposed to amend the Insurance Act. The solution that was proposed involved submitting the renewal to the court, which is more or less unacceptable to the companies that are involved in this case. Indeed, it might take two or three years before authorization is granted to acquire a business interest through legal proceedings on novation.
Discussions are underway with Minister Martin and the insurance sector in order to try to move things forward, but it isn't done yet.
As to the budget and the debt, I might remind you that the surplus that we are discussing this morning is still only a virtual surplus. The position of the Quebec Chamber of Commerce with respect to the debt is first of all based on prudence. We have already heard the theory that the debt is not important as long as there is economic growth, which is partly true. If you owe $20,000 and you earn $50,000 and one day you earn $200,000, your debt is no longer proportionally as high. However, if you lose your job, you may as well owe $50,000 because you have no means to pay back your loan.
The attitude that we had in the past with respect to the debt has led us to believe that it wasn't important because we thought economic growth was a sure thing. That's how we found ourselves with a $44 billion deficit, without even mentioning the interest rates that are out of proportion with the money that the government takes in.
Nevertheless, I think we have to create wealth and do this through personal income tax reduction. Bringing down taxes will help to revitalize the economy. Economists have a hard time determining the leverage effect for each dollar in taxes that isn't paid.
I think that in recommending a tax cut at every level, and particularly in the highest brackets, we will find that a fair amount will be spent, thus encouraging economic growth and higher productivity.
For businesses, the present tax rate represents an enormous unproductive burden, especially in a world market, where foreign corporations are competing with us on our own turf and where professional resources are paid between 70,000 and 90,000 Canadian dollars, with an equivalent U.S. value of $35,000. We can't compete on a dollar to dollar basis. If we don't look after our own productivity, through reducing taxes, among other means, in order to get the economy moving again, then we will have major problems.
A tax reduction creates a sort of trigger for economic growth; it makes the economy more productive, it creates more jobs which generates higher tax revenue and it helps redistribute money throughout society.
If you don't follow that model, your debt will only increase. The economy will slow down, interest rates will rise and the debt will increase. Personal income taxes must come down.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
Mr. Szabo, please.
Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.
The issue of homelessness has been addressed to us on a number of occasions, and I want to thank Mr. Saillant for raising it. I need some help, though.
In Toronto, Anne Golden chaired a committee that did a report on homelessness in Toronto. Toronto is not Canada; it happens to be one city in Canada. However, it does provide a recent study on homelessness from that perspective. I went through it and summarized some of the root causes of the homelessness they experience there. They found that 35% had mental health problems; 28% were youth alienated from their families, of which 70% had experienced physical or sexual abuse; 18% were aboriginals off reserve; and 10% were abused women. That accounts for over 90% of the homelessness in Toronto.
On top of that, 42% of the homeless in Toronto did not come from Toronto; they came from other places in the country. It demonstrates the urban magnet, the Field of Dreams cliché: “If you build it, they will come.” It's a very serious problem.
Many of the municipalities are taking great advantage of the homeless issue to try to talk about social housing. When I look at those statistics, it says to me that the homeless, in Toronto at least, seem to be those individuals no one loves; that far too many families are failing to meet their responsibilities; and finally, that far too many communities are not providing for their own.
So if homelessness is such a disaster, as you put it, can you explain to me why, in our social housing system, we insist on providing only less than half of those units to those in most need, and more than half of them go to people who pay market rent because we don't want to stigmatize the poor? Why is it such a shame that we can let them be on the street, but it's not a shame that units that would otherwise be available for people who have no money for homes have to be on the street because we don't want to stigmatize those who can't pay market rent?
Mr. François Saillant: In my view, there was a time when the federal government invested in social housing, but not enough, because you can't really say that at the end of the 1980s or at the beginning of the 1990s there was enough, but that housing did meet many needs, including those of the homeless.
Let me give you an example, a housing project in Montreal managed by the Fédération des OSBL en habitation. The federation is a collection of various houses and non-profit organizations which take care of the homeless or drug addicts, or both.
The organizations helped find shelter for these people and also provided them with community support. It became obvious that for certain people, the mere fact of housing them only solved part of the problem. You haven't solved the whole problem. These people also need community support.
Back then, there was a variety of programs and enough funding to meet various needs, so it was possible to provide this kind of program. At the end of the 1980s, several hundred housing units were made available for people in need.
But today, there is clearly not enough social housing to help everyone. When you hear that the number of renters who spend over 50% of their income on housing has increased by 43% in Canada, you know there is a crisis. When you realize to what extent the number of homeless has increased, you know this is an emergency.
In my opinion, the solution does not lie in making the most efficient use of the available housing units, but rather in increasing that number. There's no question that we must build more social housing to meet the pressing needs people have. I don't want to have to decide who needs housing more: the homeless or single-parent families who spend over 70% of their income on shelter.
It seems that Canada is rich enough to solve both problems and not only one of them. That's why I warn the committee against looking at homelessness as a separate problem, without taking into account the overall housing shortage.
Clearly, homelessness does not only have to do with the housing shortage, but of course both are closely linked. People who work with the homeless on a daily basis have said as much. Both go hand-in-hand.
The Vice-Chairman (Mr. Nick Discepola): Are there any other questions? Mr. Cullen, please.
Mr. Roy Cullen (Etobicoke North, Lib.): Thank you very much, Mr. Chairman. I would like to thank the witnesses for their presentations today.
I have a short question for Mr. Drouin of Valorisation-Recherche Québec. Mr. Drouin, there's a lot of talk about the new economy these days, but in Quebec and elsewhere in Canada, we have a traditional economy based on natural resources. For instance, here, in Quebec City, there is a forestry research institute for wood products, namely Forintek.
In your view, where should the Canadian government's priorities lie: with the traditional sector, that is, natural resources, or the new economy?
Mr. Gilbert Drouin: I'm not an economist, so I can't really answer your question, but I believe that traditional industries must be modernized, because they're really based on the same technologies used in the information sector. Therefore, the problem of research and development of human resources is the same in that sector.
Just because you're a mining company, for instance, does not mean you shouldn't use new technologies to help implement new prospection methods. Certain projects were created in Canada to carry out geological sections which make prospection easier, and so forth. These projects use new technologies.
So, in my view, the two are not mutually exclusive. I think the same resources can be used in both cases.
Mr. Roy Cullen: Thank you.
My next question is for Mr. Saillant and Ms. Villeneuve.
The figures you presented in your brief, on page 4, show that the situation in Quebec is worse than I thought.
Like my colleague, Mr. Szabo, I believe that the homelessness problem is linked to housing availability. Do you think there's a link between homelessness and the closing of psychiatric institutions and the lack of a corresponding investment in community services?
Mr. François Saillant: I think it's obvious that the two are linked. There are many reasons why people end up on the street. One of these problems is indeed the release of patients from psychiatric institutions. Psychiatric patients were simply let go but nothing was done to provide them or communities with ways of supporting them. This obviously has led to an increase in the number of homeless people. However, since we now know the problem exists, we have to find a way to solve it.
I don't think the solution lies in increasing the number of shelters. For instance, in Toronto, there aren't enough beds to go around. But this isn't the case in Quebec. In Quebec, in Montreal or in Quebec City, there is not necessarily a lack of beds in shelters. What the homeless need is a permanent roof over their heads and the kind of community support that will help them solve their other problems, be they linked to drug addiction or mental health. So, for now, there's no point.
A few days ago, Ms. Bradshaw announced that the government would invest about $2 million to put more beds in Toronto's shelters. If that's the kind of solution they think is going to eradicate homelessness, I think they're missing the boat. We have to find permanent, long-term solutions. And as Mr. Cantin said, everyone has to work together, individuals and municipalities, which for their part can't just send the homeless from their town to another. Provincial governments also have to work with each other. In Quebec, there is a small social housing program. Unfortunately, this kind of program basically doesn't exist in the other provinces. I believe that only British Columbia has a similar program. The federal government must contribute, and it has the money.
For me, you must ask yourselves how to spend the surplus. It would be a mistake not to invest a good part of the surplus on social housing, because not doing so will have serious repercussions.
The housing shortage is worsening and the situation will continue to degenerate despite economic growth. It's quite sad that economic growth has not solved the problem of homelessness. It also hasn't helped in reducing the number of poor families. It also hasn't solved the housing problem. We will have to find a way to share the wealth. And there is some wealth to share, these days. People say the surplus will be $96 billion. That's a lot of wealth and the poorest of the poor must receive their share.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Saillant.
Mr. Claude Cantin: Mr. Chairman, allow me to add a few words to what Mr. Saillant has said.
In the Golden Report on the city of Toronto, a link was established between homelessness and the lack of affordable housing. A little while ago, Mr. Szabo told us about the kinds of people who are homeless. Apart from young people who have run away from home and who are far from home, everyone else had some kind of income. It may come from welfare, but they do have a minimum monthly income, which income unfortunately, is not enough to cover housing costs. And that's the nub of the problem.
It was also said that Canadians' incomes have not risen in the last 10 years. This also goes for the poor, but the price of housing has increased. In the absence of subsidies for renovations in urban areas, the price of renovated housing just kept on going up.
It's not only a problem of homelessness. It's the fact that housing has just become unaffordable. Many people, even those with jobs, spend 50% of their income on housing. So it's easy to see that those who are at the bottom of the food chain, who have physical or mental health problems or who are single parents having to provide for food, school supplies and clothes for their children, cannot afford to live in the city. Toronto is one of those expensive cities and there are other ones across Canada and in Quebec.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Cantin.
Mr. Nystrom, please.
Hon. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you, Mr. Chairman. On behalf of the members from Saskatchewan, I would like to welcome you to our committee.
I have a question for the representatives of the Chamber of Commerce. You said that half the surplus should go towards reducing taxes in Canada. You also mentioned the debt, but you did not talk about social spending on health, education, homelessness or any of the other problems facing our country.
Yesterday, in Saskatchewan, there was a federal by-election. The major issue was the farm crisis. The Liberal Party received only 15% of the votes because the people of Saskatchewan want more money for farmers and for the health care system. You did not mention these extremely important issues to Canadians. You just talked about reducing taxes and the Canadian debt and several other issues regarding productivity. Why?
Mr. Michel Audet: If you read our brief, you will see that we did speak to the importance of increasing spending for training and education. Why did we not mention health care? Because it's a subject that has been debated at length in the last few years. Some adjustments were made to transfer payments. Was it enough? It's not for us to judge, but that particular issue was debated last year.
If there are changes to be made, we believe they have to be with training. We were asked what was the most important thing to increase productivity in the economy. Well, universities and research are underfunded. If we want Canada to remain competitive in five or ten years, we had better invest more money in these areas. Tomorrow's jobs are at stake.
If we tell you that you should increase spending in every sector, we'll just repeat what happened in the past, namely a ballooning deficit. So, for spending, we focussed on certain issues: infrastructure and education.
Mr. Lorne Nystrom: But why not health? Thirty years ago when medicare was created in Canada, about half of the costs were paid by the federal government. Today, the government only pays 12 or 13%. Mr. Martin provided some additional funding last year, but despite the increase in the federal transfer, the federal government still only pays between 14 and 15%. Why not mention health? It's a very important issue throughout the country. Hospitals are closing not only in Quebec, but everywhere. You never even mentioned this extremely important matter for most Canadians. Ms. Villeneuve, perhaps you would like to address the issue.
Ms. Lucie Villeneuve: For us, it is extremely important that social transfers be increased. The federal government said that it would reinvest in social programs, but these programs are currently under the purview of the provinces and the federal government must reinvest in the transfer payments. We have national policies: we want people to have a decent income and a health and education system accessible to all. University is important, but before going to university, you have to finish grade school and high school. Today, things are increasingly difficult for poorer families. Access to education and health care is not as easy as it once was. Services provided by nurses, social workers and remedial teachers have been increasingly cut back by school boards and in schools. Regarding health care, there are fewer physicians in large cities. More of them are setting up practice outside of urban areas. So people have to take the bus, if only to go to the drugstore, and so on.
We've heard that our health care system is on the verge of showing a deficit. Who will pay? The poor and the elderly. Today, the poorer you are, the harder it is to find housing, to eat, to get health care, and all you do is pay, pay, pay.
Furthermore, there is more and more discrimination against people because of who they are. Take housing, for instance. Landlords often will not rent to a poor person because they can't be sure they will collect the rent. Therefore, a poor person is often forced to take the next available apartment, which may be too expensive, not very soundproof or not very accessible.
Mr. Lorne Nystrom: Mr. Chairman, allow me to ask a very short question of the Laurentian Bank or the Chamber of Commerce.
You did not mention the GST. According to a poll taken a few weeks ago on lowering taxes, most Canadians said they wanted a decrease in the GST. We are politicians and our job is to listen. If they don't, they won't get elected.
Why did you not mention the GST?
The same goes for the Chamber of Commerce. You talked about all the other taxes, but not the GST.
Mr. Simon Prévost: I'll start by saying the following. If you weigh the importance of indirect taxes and of the GST in particular from a fiscal point of view, you realize that it's not a problem today. People might be more aware of the GST on a daily basis when they go shopping, but it's not a problem, provided that the money is redistributed fairly and that the poorest families benefit the most.
In terms of tax issues, that is not where the problem lies. It is rather at the other tax levels that we were discussing. That's why we didn't mention it. In reality, the type of tax represented by the GST is, in the long term, much more productive in terms of fiscal efficiency. That's why we don't deal with it.
Mr. Michel Audet: The documents that were provided to us in the update by the Minister of Finance of Canada, Mr. Martin, state that when you make an international comparison—this is an important factor—you note that in the G-7 countries, and probably in all developed countries, personal income tax in terms of the percentage of the GDP is higher in Canada than anywhere else. It is close to 14%, while in the United States it is about 10%. We are really the front runners.
That is why we emphasized income tax, which affects our competitiveness; this would apply to a much lesser degree in the case of the GST. Once again, we know that governments must make money. The GST, as it is designed, represents an advantage for investors, since they can invest and have their inputs refunded. You are right in saying that the present system is not the main priority. So we chose to discuss income tax. The two taxes that prevent us from being competitive are personal income tax and corporate taxes.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Audet.
Mr. Cantin, please.
Mr. Claude Cantin: Mr. Chairman, there are two things that always make me uncomfortable when we deal with tax reduction. When we talk about cutting taxes, we must not forget the services that we receive in exchange for the taxes that we pay. When we compare our taxes to what the Americans pay, we must add to the U.S. income tax the costs associated with health insurance that Americans pay through their companies or individually. That is what the income tax in the United States truly represents. Compare that to what we pay.
In the United States, the health costs are equivalent to 11% of the GDP; in Canada, it's 9%. Therefore, our health care costs are lower. Nevertheless, we continue to say that it is expensive, etc..
We have to compare apples with apples, and not apples with oranges. American income taxes do not pay for education and health services. We have to take that into account. If we want to reduce our income taxes, do we want to reduce the level of services? All of those who are more than 50 years old will remember what it was like when we didn't have health insurance.
Secondly, the GST is a regressive tax. It's more regressive than income tax, because, generally speaking, the poor pay more through GST than do the wealthy. Once you have eaten your three meals a day, you have had enough. Even the very rich can't eat ten meals a day and therefore they don't have to pay any extra taxes. But if your income is higher, you pay more income tax. There is a difference.
The GST is the most regressive tax going, because the poor are hit harder. The question asked by Mr. Nystrom is perhaps the right one. Maybe that's what we should be looking at instead of personal or corporate income tax.
The Vice-Chairman (Mr. Nick Discepola): Thank you.
Mr. Scott Brison, please.
Mr. Scott Brison (Kings—Hants, PC): My name is Brisson now.
Some Hon. Members: Oh, oh!
The Vice-Chair (Mr. Nick Discepola): All right, Scottie, go get him.
Mr. Scott Brison: I'm sorry, but my French is very poor. I hope that with one more week in immersion, I will be up to speed.
Mr. Lorne Nystrom: He speaks French like John Diefenbaker.
Some Hon. Members: Oh, oh!
Mr. Scott Brison: It's great to hear from you today. I think it's very important that we do not polarize those who on the one hand want and believe it's very important to have tax relief, and those on the other hand who believe we need social investment, because we need both. Being in the enviable position where we have a surplus at this time, we are in a position where we can have both. I think that's very important.
On the tax relief side, one of the taxes where we are most significantly out of line relative to the U.S. is our capital gains tax regime. I would appreciate your feedback on that capital gains tax regime, particularly in light of the trend in the high-tech sector for stock options to be used as compensatory assets. It's also my understanding that Quebec has seen a significant growth in the high-tech sector, and I believe Quebec would be well positioned to grow further in that area.
We currently have about twice as oppressive a tax regime, in terms of capital gains, as the U.S. To put us in the same ballpark as the U.S. capital gains tax regime would not cost a whole lot; it would be about $250 million per year. It's not a huge amount of money, but sometimes the perception politically of reducing the capital gains tax clouds the issue a little. So I would appreciate your feedback on that.
Mr. Michel Audet: If I may, I would refer you to part of a brief presented recently by the president of Alcan, Mr. Bougie, who said that in Canada, we had a very special situation: lottery winnings are not taxable, but we pay tax on capital gains and even the capital that is borrowed by a company to create jobs. And then we wonder why investments are so low.
I think we have some thinking to do, not only with respect to capital gains, but also about the way that capital is taxed in Canada. Investments require more and more capital, and yet capital is penalized, not only with federal taxes, but particularly with provincial taxes. We must recognize that in Quebec, taxes on capital are very high, much too high.
The Vice-Chairman (Mr. Nick Discepola): Mr. Saillant.
Mr. François Saillant: I think one of the most disastrous policies of the Mulroney government was the capital gains tax exemption, which was to reach $500,000 in one's lifetime, and which, in the end, stopped at $100,000.
Real estate was one of the most speculative tax shelters ever, and it was one of the things that contributed to higher rents, the effects of which we are feeling today.
What is scandalous is not the fact that capital gains are overtaxed, but the fact that they aren't taxed enough. From the very outset, 25% of capital gains escape taxation, while 100% of the income earned by any individual taxpayer is taxed.
There is a one-time capital gains exemption of $500,000 for small businesses and farm assets, and these tax exemptions are mostly advantageous for high-income taxpayers. I think that is where the problem lies. To my mind, if we want to balance taxes, we must first rebalance the tax burden. That's what should be done instead of granting greater privileges.
The Vice-Chairman (Mr. Nick Discepola): Mr. Dubuc.
Mr. André Dubuc: I would like to add to what Mr. Brison has said.
It is true that our system for dealing with capital gains is much less favourable than the one which exists in the United States. We are causing it to deteriorate quite markedly, to such an extent that there are now very few advantages in registering any capital gain. Basically, the advantage is in paying 75% of the regular tax rate, which is nowhere near as generous as in the United States, and which greatly prohibits the realization of capital gains that could, in some way or other, be achieved if the tax system were more advantageous.
The other thing, which Mr. Audet mentioned, and which is something that, as a bank, we feel, is that capital is taxed at a number of levels in Canadian society. This is particularly true for the banks, which are subject to discrimination since they pay higher rates on the capital used in their operations.
When reviewing personal income tax, we will have to revisit our treatment of capital gains so that it compares more closely to that of the United States.
The Vice-Chairman (Mr. Nick Discepola): Yes, Sir.
Mr. Gilbert Drouin: I will not be commenting on the taxing of capital gains. When you create a new company based upon knowledge acquired through university studies, this knowledge is evaluated. It is given a value, and the person must pay taxes on a fictitious value when that person does not have the money to pay the tax.
If a given technology is assessed at one million dollars, for example, the inventor must pay tax if his capital gain is $500,000, but he won't have the necessary amount of money.
This is one of the problems that prevents the transfer of technology.
The Vice-Chairman (Mr. Nick Discepola): Quickly, Mr. Gagné.
Mr. Gaëtan Gagné: We must be consistent. The capital gains exemption encourages the private investor to invest in businesses that create jobs. If you increase the tax on capital gains, you lose the advantage.
Compare the TSE 300 index to the NASDAQ, and you will see that there is a great difference in terms of profitability. That really slows down the economy. There have to be advantages. People take risks. They're willing to invest in businesses, but if you tax them more than they would have to pay if they put their money in the bank, then our economic performance will be 3% and we will have to live with that.
The Vice-Chairman (Mr. Nick Discepola): Mr. Brison, very briefly, please.
Mr. Scott Brison: A quick comment.
The important thing is to realize it creates a significant inefficiency in the economy. The Dow-Jones grew by 280% during the same period that the TSE grew by 100%. For $250 million per year we could eliminate that and create more jobs and growth.
Before I was in politics, I was in business. When jobs are created it's good for everybody. I was never hired by a poor person; I was always hired by somebody who had money. The reason they had money was because they invested and took risks. I think we can have a system whereby people can become wealthy and be successful, and at the same time we can have a system that cares about people. We are in a free-market economy, and we should realize it's important that for that to be sustainable people need access to the levers of that free-market economy. That's where social justice comes in. But I don't think we should ignore the fact that we are in a free-market economy.
The Vice-Chair (Mr. Nick Discepola): Thank you very much, Scott.
I'd like to thank our guests. Our decision will be slightly easier thanks to your presentations, but it will still be difficult because there are always differing positions. That's why I am relieved when I hear opposition members side with us on the need for a balanced approach.
Our recommendations to the Minister of Finance will reflect your suggestions, but I think we will adopt a balanced approach. We have a number of needs to consider, and I am sure that we can't solve all of the problems simply by throwing figures in the air. When I analyze the numbers, I always say that behind each number, there is a taxpayer, a human being that I must never forget about.
I have a short question to ask and I would like to have a short answer because time is running out. Mr. Cantin, have you stated what type of infrastructure programs are required? If so, what are they?
Mr. Claude Cantin: It's in the MCF brief: about $10 billion per year over five years, split between the federal, provincial and municipal governments, and then a slower cruising speed, that is, about $8 billion, I believe.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
We'd like to thank our guests. We will take no more than a five-minute break so that our next witnesses can be seated. Thank you.
The Vice-Chairman (Mr. Nick Discepola): I would like to welcome our next witnesses. First we have representatives from the Association des producteurs de films et de télévision du Québec, Mr. Raymond Bréard, president and chief executive officer, Mr. Luc Chatelain, producer and member of the finance committee; and Ms. Suzanne D'Amours, consultant. We will then hear from representatives of the Fédération des caisses populaires et d'économie Desjardins du Québec: Mr. Roger Champagne, chief tax advisor; Mr. Yves Morency, secretary of government relations; and Ms. Hélène Bégin, economist. From the Canadian Employee Relocation Council, we welcome Ms. Thi Nguyen, the president, and from Génome Canada, Mr. Martin Godbout, executive director. We also welcome Dr. Jacques Simard, director of genetics from the CHUL research centre.
I would first ask the representatives from the Association des producteurs de films et de télévision du Québec to begin their presentation. As usual, you will have ten minutes in order to allow the members to have an opportunity to ask you questions and speak with you.
Mr. Luc Chatelain (Producer, Member of the Finance Committee, Association des producteurs de films et de télévision du Québec): I would first like to thank the committee for agreeing to hear us. My name is Luc Chatelain and I am a member of the finance committee of the Association des producteurs de films et de télévision du Québec. I have with me Mr. Raymond Bréard, the chief executive of our association, and Ms. Suzanne D'Amours, a tax consultant who has been a full-time employee of the association for a number of years.
The Association des producteurs de films et de télévision du Québec represents about 100 production houses with a film and television production volume representing $500 million, mainly in Quebec.
The Canadian government has always supported television and film production. Over the years, this support has contributed to the emergence of a real film and television industry. The situation in the industry and within production companies remains fragile, however, and is more or less dependent on public funding. This is an obvious fact.
Our presentation this morning will only cover the main points of our brief, which is quite detailed and involves mostly our suggestions to improve the present tax credit system. We can come back to any points in the brief that you might have questions on afterwards, if need be.
In order to respect the requests that were made by the committee, we will deal with the tax reform, the new economy, and productivity objectives that we would like to see in Canada's tax system.
First of all, with respect to tax reform, we will deal with two tax credit programs for film production that have been implemented. The first program, created in 1995, was aimed at supporting production, whereas the second program, created in 1997, was aimed mostly at foreign productions filmed in Canada, the main objective being to encourage the hiring of Canadians to work on foreign productions.
The main goal of the tax credit program created for the Canadian industry was to provide Canadian productions with reliable, automatic and significant sources of funding so as to enhance exportability—if I can use this term—of Canadian productions.
We have been working with this program of tax credits for some years now. We have made certain requests for amendments that we are repeating today. We believe that some of the fundamental objectives of the tax credit program that had been identified at the outset have only been partially achieved.
There are inequities between the two programs. The program to support what is called service productions, that is foreign films made in Canada with Canadian labour, is not subject to the same requirements as the program that supports Canadian production. Paradoxically, non-Canadian productions can benefit, in many cases, from a tax credit yield that is higher for them than it would be for a Canadian production.
In our brief, we also explained the different objectives that we would like to pursue in reforming the Income Tax Act.
First of all, we would like—I believe it's a position that is generally supported across the country—that the administration of the tax credit program be simplified. Secondly, we would like a quicker processing of the tax credit refunds. Thirdly, we recommend the improvement of the amount paid in tax credits, that is the effective tax credit rate, which has strayed from the objectives that were set at the outset. Finally, we would like the tax credit rules to become more dependable, because at this time there is a set of rules, that we will deal with a little later, that offer us no guarantee when we begin a production that we will be able to benefit from the tax credit program. This uncertainty causes no end of headaches in terms of obtaining funding from investors or banks and can even threaten the viability of certain projects.
I will now move to the suggestions we would like to make to the committee, suggestions that are described in detail in the brief that we have tabled and that we might, if necessary, in answer to your questions, relate in greater detail.
First of all, when we talk about simplifying the calculation method, our proposal would eliminate the ceiling that is calculated for the cost of a film. This proposal would therefore have the dual advantage of simplifying the calculation of the tax credit and eliminating the concept of unfairness between what Canadian productions and service productions are allowed to claim, and by service productions I mean those that have no Canadian content, foreign productions filmed in Canada using Canadian labour.
The second proposal is to improve the yield from the tax credit. If that was done, the program could provide a significant level of financing, which was one of the basic objectives.
To illustrate why changes are needed, I would remind you that the tax credit program was initially expected to cover up to 12% of production costs for films and television programs. In fact, the average payout in Quebec and Canada is currently between 6% and 8% for television programs. Where movies are concerned, the effect of tax credit rate or yield can be as low as 2% of film production costs. As a result, as was mentioned earlier, this program that we assumed would be relatively automatic, dependable and significant has not turned out to be as beneficial in practice as we would have hoped.
The yield from the tax credit program can be improved in two ways: first, by calculating private and public funding differently under the tax credit program so that labour costs are not reduced because of the private assistance provided to various productions; second and more simply, by increasing the tax credit percentage.
A third way is set out in our brief. It involves eliminating the concept of “investor”, a term that is currently the subject of long discussions with Revenue Canada. Based on this idea of “investor”, the copyright or ownership of a film or television production can be attributed to someone other than the production house.
The concept of “investor” that we are proposing would require the Canadian television industry to change the commercial practices that have always existed between production houses and distributors. The practices in place in Canada did not develop by chance; they're in line with what is done worldwide in the industry. We are in a position of trying to change, for purposes of the Canadian tax system, the kinds of commercial transactions that can be undertaken with international commercial partners. That would go against the objective identified when the program was first put in place in 1995, that is, to increase the exportability of Canadian productions.
Our final recommendation in this area is to review the process used by the Canadian Audio-Visual Certification Office, CAVCO, in analyzing productions to certify them as being Canadian, so that applications can be dealt with more quickly. Certification of a Canadian film, even before Revenue Canada gets involved, can take CAVCO up to a year. That puts enormous pressure on financing costs in the film production budget, and the program, which was intended to promote investment in screen productions, ends up generating interest for Canadian banks.
Now I will turn to the second part of our brief, which deals with the new economy and productivity.
As we said at the very beginning, there is no doubt that the various programs set up over the last few years by all levels of government have led to the emergence of a genuine Canadian television and film production industry. As an illustration of this, the growth rate in this industry between 1993 and 1997 was 9.2%, compared with a growth rate of 1.7% for all industries combined.
Moreover, film and television production has turned out to be a major cultural vehicle. It is an extremely effective means of disseminating Canadian culture. The industry also contributes significantly to the economy, not only because of its rate of growth, but also because of the strong labour demand. It is an industry that is not built on capital assets, bricks and mortar, but rather on know-how and knowledge.
Finally, although it is partly funded by a tax credit program, the industry has tax spin-offs that are worth much more than what the tax credit program puts in.
The television industry has certainly grown by leaps and bounds. Film production, however, is facing a problem that is only getting worse. Production budgets for Canadian feature films have fallen by about 10% over the last 10 years, while in comparable countries, such as Italy, the United Kingdom and Australia, production budgets have increased by between 17% and 35%.
As we know, an advisory committee was set up by Ms. Copps for the promotion of Canadian feature films. The committee recommended that a financial investment program for Canadian feature films be set up along the lines of the Canadian Television Fund. The aims of the program were to create a critical mass for Canadian film production by increasing budgets, improving quality on the international market.
We hope that the Standing Committee on Finance will give us its support for our proposals relating to both tax reform and the improvement of the situation for feature films in Canada.
That said, I would like to thank you for giving us this opportunity. We will be available for questions after the other presentations.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Chatelain. If you would like to elaborate during the question period, please do so.
Mr. Luc Chatelain: Thank you.
The Vice-Chairman (Mr. Nick Discepola): From the Confédération des caisses populaires et d'économie Desjardins du Québec, we will now hear from Mr. Morency. Welcome, Mr. Morency.
Mr. Yves Morency (Government Relations Secretary, Confédération des caisses populaires et d'économie Desjardins du Québec): Thank you. I am accompanied this morning by Ms. Hélène Bégin, an economist with the Confédération Desjardins, and Mr. Roger Champagne, our senior tax advisor.
I would like to begin by mentioning that the Mouvement des caisses Desjardins has nearly $80 billion in assets across Canada. We are the sixth largest financial institution in the country. We are present and active in all regions of Canada. We have member credit unions in francophone areas of New Brunswick, Ontario and Manitoba, and a number of our branches are active across Canada.
The Vice-Chairman (Mr. Nick Discepola): And even in Florida.
Mr. Yves Morency: And even in Florida, to accommodate our members who go to warmer climes during the winter. These people will soon be going south; we have to provide services where they are.
Since the mid-1990s, Canadian governments, at both the federal and provincial levels, have made a huge effort to get their financial house in order. That has helped restore confidence in our governments by the international financial community, as well as by Canadian citizens. Despite this spectacular turnaround, however, the battle is far from over. It would be unrealistic to think that the problems resulting from a quarter of a century of fiscal laxness, at both the provincial and federal levels, could be corrected in so little time.
Strides still need to be taken in at least three areas. First, there are the provincial and federal debts. The combined debt still stands at around 100% of GDP, although it has been going down appreciably over the last few years. Second, the elimination of the deficit has unfortunately added to the tax burden on Canadians and has prevented them until just recently from benefitting from the prosperity being enjoyed by North America as a whole. Third and last, there is still work to do in improving government efficiency.
In short, now that it has a financial margin, the federal government must take a highly ethical and responsible approach so as to avoid falling again into the trap of short-term management or opportunism. It is also important to keep in mind that the efforts and budget-cutting that went into eliminating the deficit and more recently even generating surpluses required of all Canadians without exception major sacrifices in terms of a significant and real drop in their standard of living and the quality of public services.
Given the more favourable economic context that is expected, the federal government has some room to manoeuvre that leaves it with three options. This morning, before coming here, I was reading in the newspaper that over the first six months of this year, the federal surplus had already reached $8 billion. The government therefore has three options, to reduce the public debt, reduce taxes or increase spending. Regardless of the way in which the surplus is divided among these three options, it is our view that the government must proceed very prudently and stringently in using these surpluses.
On the public debt, we are still of the view that reducing the debt-to-GDP ratio in the economy is essential. However, we believe that the best way to do that is to avoid above all falling back into the deficit trap.
Over the last three years, the federal government has made efforts that have resulted in the debt-to-GDP ratio decreasing from 71.2% to 64.4%. This is a drop of nearly 7%. This trend should continue and will bring us, perhaps quickly, toward a ratio of 50% over the next few years, which is closer to the levels in most G-7 countries.
With respect to the tax burden on Canadians, our position is that the federal government must substantially cut taxes in order to improve our economy's competitiveness, promote longer-term economic development and create jobs.
By way of example, we would propose such measures as continuing to index the amounts used to determine spousal personal tax exemptions and introducing indexing for tax brackets.
In our opinion, indexing is important because it seems to us to be the best way to set parameters for government spending. With indexing, you receive money in real terms but spending also grows in real terms and is not unduly increased by inflation. We see this as an important factor that can subdue or even vanquish the temptation to overspend.
Steps should also be taken to gradually reduce marginal tax rates, further cut employment insurance premiums for workers and employers and, in the same vein, review or at least correct certain problems relating to access.
In the area of government spending, we urge the federal government to be prudent when considering any new programs. It is our view that the government must first and foremost consolidate its efforts and strengthen the many existing programs, while continuing to respect the present division of powers between the various levels of government.
Over the last few months, we have increasingly heard about patients from Quebec going to the United States for medical care. To my great surprise, we learned yesterday that the situation is the same in other provinces.
Before undertaking any new expenditures, Canadians must consider reinvesting in the health sector. In the past few years, the provinces have been called on to do some serious belt tightening and they need to be given back a little bit of room to manoeuvre in the health sector.
In order to address health, education, income disparity and poverty issues, the federal government needs to use part of its surplus to restore provincial transfers in these areas.
In closing, we believe that the best contribution the central government can make to the country's economy would be to continue to ensure responsible management of our public finances. In the document tabled recently by Mr. Martin, he spoke not only of $3 billion per fiscal year that could be used to address any problems, but also of additional amounts. We support his fiscally responsible approach and we believe that he will also be able to implement a competitive tax regime.
As you know, we are in competition with governments that have lower tax rates. We do not believe that we necessarily need to cut our tax rates to the same levels, since Canadians all understand that somewhat higher levels are needed here so that we can maintain the health and education services we count on. There is, however, room to reduce that gap. Looking for efficiencies must continue to be an abiding priority.
That is the message that we wanted to give you. We will be pleased to answer any questions at the appropriate time.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Morency, for your suggestions.
Ms. Thi Nguyen, please.
Ms. Thi Nguyen (President, Canadian Employee Relocation Council): Good morning, Mr. Chairman and members of the committee. Thank you for giving me this opportunity to make a presentation to your committee.
The Canadian Employee Relocation Council represents close to 450 Canadian businesses and organizations involved in one way or another with employee relocations. There are approximately 30,000 employer-initiated moves in Canada each year. At a cost of $40,000 for each move, employers inject about $1.2 billion directly into the Canadian economy. These figures do not capture individuals who initiate moves when they change jobs, find new employment, or start new businesses.
The purpose of my presentation is to ask you and your committee to support our request for tax relief on relocations.
In 1985, almost 15 years ago, the federal budget included tax relief on interest-free housing loans of $25,000. This measure was welcomed by individuals as well as their employers, who initiated relocations to areas of high housing costs. However, in 1998 the government imposed taxes on direct or indirect employer reimbursement regarding financing of an employee's residence; reimbursement of mortgage interest differentials as the result of moving to a higher housing cost area; and reimbursement of equity loss and loss on sale on half of any amount in excess of $15,000.
The government claimed that these tax measures struck an appropriate balance between improving equity in the tax system and encouraging mobility. The council strongly disagrees with the government's position, as the argument of equity does not differentiate between those taxpayers who elect to move to take advantage of business opportunities versus those who are forced to move to keep their employment with their employers. The council also believes these tax measures discourage rather than promote mobility.
In a global economy where competition is the key to survival, a mobile workforce is required in order to ensure that corporations maintain viable and strong operations. Therefore the council recommends that tax relief be introduced in the year 2000 federal budget to ease tax liability to individuals, many of whom were forced to move to retain their employment with employers, who have no choice when or where to relocate, and who already face family disruptions and in many cases loss of spousal income. It would also serve to promote incentives in order to enhance and encourage mobility.
Mr. Chairman, we are asking for the following tax relief measures.
One, to increase the interest-free housing loan from $25,000, which the government introduced in 1985, to $75,000. The survey of Canadian house prices by Royal Lepage shows a sharp increase of home values across Canada between 1985 and 1999. For example, in 1985 a standard two-storey in Vancouver was valued at $120,000, as compared to $375,000 in 1999. That is an over 300% increase. The same standard two-storey in Toronto was valued at $110,000 in 1985 as compared to $230,000 in 1999. That again is an over 200% increase.
Second, index tax measures applying on the $15,000 of equity loss and loss on sale reimbursement. By allowing index on tax measures to apply on the reimbursement of equity loss and loss on sale, the government will recognize that housing values increase with inflation and growth in the economy.
Mr. Chairman, workforce mobility and removing barriers to increase domestic trade are two objectives of this government that business can easily support. NAFTA has been a success, but Canadian companies and employees already lag behind their U.S. counterparts in after-tax income. Introducing a small tax relief on relocation will shorten the gap and enhance commercial mobility. Therefore, I'm asking you and your committee to support our recommendations. Thank you.
The Vice-Chair (Mr. Nick Discepola): Thank you very much.
Mr. Godbout, I would invite you now to make your presentation.
Mr. Martin Godbout (Executive Director, Genome Canada): Mr. Chairman and distinguished members of the finance committee, we are very pleased today to introduce to you a new initiative, Genome Canada.
I'm very pleased to be able to address the committee on behalf of Genome Canada.
The co-chair of Genome Canada, Dr. Lap-Chee Tsui, from Toronto University, spoke to you in May about the aims of our initiative. As a result of work over the past few months, we can now offer further explanation of both the initiative itself and why it is essential for Canada to invest in this vital area of science and technology to increase the productivity and also enhance a higher standard of living.
It is now widely accepted that one of the major drivers of the new economy will be biotechnology. Governments and the private sector everywhere in the industrialized world are investing heavily in the means to understand and control the workings of living organisms ranging from bacteria to crops and to humans.
For Canada, the biotechnology revolution will have a significant impact on industries that comprise up to 25% of our GDP, including health care, pharmaceuticals, agriculture, mining, environment, and forestry, not to mention fisheries.
Biotechnology has the potential to create many thousands of good new jobs and to enhance our competitiveness in the world market. It also offers many direct benefits to Canadians in fields such as health and the environment.
At the heart of biotechnology is genomics, the science that decodes the genetic information around which all life is formed. Genomics is fundamental to our understanding of how life processes work and how they can be altered, whether we are seeking to develop a new treatment for cancer or a way to use bacteria to dispose of toxic waste.
If Canada is to be strong in biotechnology we must be strong in genomics. We need to support our research scientists and developers by giving them the best possible tools, and we need to encourage innovation and entrepreneurship in the application of new research findings.
This is why I am here today with Dr. Jacques Simard, director of the genetics department of the research centre of the Centre hospitalier de l'Université Laval. Despite his young age—he's under 40—he was the first scientist in the world—not in Canada, but in the world—to identify a family of genes linked to breast cancer. We know that one person in every nine will get breast cancer, which means three millions people in the United States and just over 30,000 in Canada. This is not a minor illness and there has been a great deal of competition in scientific circles to try to identify these genes.
Last June, an international association, The Endocrine Society, recognized Dr. Simard's contribution through his research work on breast cancer. It is not a strictly Canadian story, unfortunately, because he had to carry out his research in collaboration with Myriad Genetics, a Salt Lake City company, because Canada did not have the capacity in terms of tools and infrastructure to handle these genes. During the question-and-answer period, I can answer some of your questions on that.
In the United States, they are already selling a screening test for breast cancer—we are not talking about a treatment, but a screening test—for $2,400 U.S.; it is available in 320 clinics across the United States and insurance companies are reimbursing 94.8% of that cost. The benefits to Canada are relatively small. If you ask Dr. Simard if he would have carried out his research in Canada if we had genome centres with enough capacity, I am sure that he would say yes and that companies across Canada like Biochem Pharma and Allelix would have used his research results.
On Thursday, you will probably have an opportunity to meet other representatives from Genome Canada who will show you that Canadian companies are currently trying to buy back the rights from the American company so that we can use the same test in Canada. If we had the necessary capacity to do the research here, the benefits would probably have been greater for Canada.
Above all, we need a national genomics strategy. Thus far Canada has not developed the kind of broad, coherent approach that is essential if we are to become significant players on the world genomics scene. As a result, our efforts are laudable but scattered and we are under-investing in the field, whereas many of our competitors worldwide are making ever-increasing commitments.
To realize its potential in the field of genomics Canada must meet three basic requirements. First, we need an overall strategy to guide our investment, to develop partnerships, and to give direction to research and development work. We must coordinate our efforts and focus on the limited number of areas where Canada can achieve success.
Second, we need to provide access to leading-edge genomics technology that will enable researchers and application developers to work at the forefront of this rapidly developing field. This will require that new well-equipped and well-staffed genomics centres be created in strategic locations across Canada.
Third, we must pay attention to the public interest through information, consultation, and research on ethical, legal, and social aspects of genomics-related science and technology.
The Genome Canada initiative will address these needs. It will develop an evolving and integrated national strategy for genome research and development in Canada. This will ensure development of a coherent approach to genomics, concentrating efforts in niches where we can compete globally.
Given the necessary support from governments, research agencies, and the private sector, Genome Canada will provide the technical facilities that are essential for research and commercialization in the rapidly advancing field of genomics. In so doing it will create new training opportunities and jobs for young Canadian researchers, thus reducing the current brain drain in this vital field. It will also undertake research into social, legal, and environmental implications of genomics and will help the public understand better the benefits and issues developed.
Genome Canada will develop facilities in some of the key locations across Canada where there is already a concentration of highly qualified personnel involved in genomics activity. Each centre will specialize in support of particular aspects of genomics technology, research, and applications, such as human disease, plant genonics in agriculture, or pharmaceuticals.
The centre will be developed in cooperation with partners, including universities, federal laboratories, commercial enterprise, and the provincial government. Each centre will cost between $10 million and $20 million per year for equipment, staff, and supplies.
Biotechnology is one of the fastest-growing areas of the global economy. In coming decades it will transform much of Canada's economy with a particularly strong positive impact on health-related industries, agriculture, forestry, toxic waste disposal, alternative fuels, and other environmental issues. Both revenues and employment in biotechnology firms are currently growing more than 10% a year in Canada.
Genome Canada will make a major contribution to this trend, as genomics is at the very centre of biotechnology development. Genomics will also provide direct benefits to Canadians through development of new therapies, such as the one discovered by Dr. Simard, through better understanding of diseases and their causative factors, through the reduction of environmental impact through biomass fuels and new tools for studying biodiversity. And many other applications will follow.
An effective genomics strategy will result in Canadians capturing a fair share of the benefits of their own research and of the genetic information in our population and our environment. It will also provide jobs and training for some Canadians, Canada's brightest researchers, both our experienced investigators and the new generation of scientists now studying in our universities and abroad.
Finally, among the partners in Genome Canada are a number of federal departments and agencies, including the following: Industry Canada, Health Canada, Agriculture and Agri-Food Canada, Environment Canada, Natural Resources Canada, and Fisheries and Oceans Canada.
We did sign a memorandum of understanding among the Medical Research Council of Canada, the Social Sciences and Humanities Research Council, the Natural Sciences and Engineering Research Council, and also the Canada Foundation for Innovation. That memorandum of understanding was signed among the presidents of all these organizations last week.
The board of Genome Canada already includes representatives of the research community and the biotechnology industry. In addition to senior federal officials, provinces, universities, and industry are also expected to collaborate in the initiative and also contribute financially.
Canada is lagging in genomics. The Genome Canada initiative needs to be implemented without delay if we are to begin catching up. We believe that the initiative should be approved within the next few months so that development of genome centres can begin later in the year 2000 and contribute for the next two years.
Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
Colleagues, I will give you seven minutes each. Please remember that that includes the answers.
Mr. Paul Forseth: Thank you, Mr. Chairman.
I've heard many interesting things today, and I'd love to be able to engage you all in conversation so that you could see that government is a helper rather than perhaps something that stands in your way. But I'll narrow my focus to one question, and it is on the presentation we heard from the film and television people on the topic of public funds for support of the arts.
You've been talking about public funds, subsidies, rather than market access, market support, or a consumer who pays. We might have a fully funded diversity in the arts, but there may be little public exposure or little opportunity for market feedback for the discipline of what is produced. So we're looking at opening the doors for the public to be able to support with popular market purchase rather than just subsidies.
In other words, we might just become an inside club producing non-market curiosities that are not great and not memorable. So instead of asking just for subsidies, which might be okay, what comments do you have to open up the market side for the opportunity for the public to choose and the public to determine, through the discipline of an audience purchase, what is produced and what is not produced? How do we enhance and open up the consumption side of the arts to pay and to support, and also to determine in a market, rather than just keep asking for more subsidies at the front end? How do we do that?
The Vice-Chairman (Mr. Nick Discepola): If you would like to answer the question, please do so.
Mr. Luc Chatelain: If I understand correctly, your question deals with the fact that the program is automatic and that any production benefits from such an assistance program, such as the tax credit, without Canadian audiences having any say in the matter. Is that the gist of your question?
Mr. Paul Forseth: Part of it is that when we look at the tremendous cultural power of the United States market, most countries in the G-7 are looking at the same issue of not wanting to be culturally swamped by the cultural powerhouse of the United States. But when we look at why that is so, it's because the economic power it comes to be able to produce is based on mass market consumption. So rather than governments tremendously subsidizing what is produced, individuals are paying for it. They're exercising that choice, and part of it is that they have access.
So instead of continuing to make the rounds of we've argued for the last 25 years about trying to provide front-end subsidies, tax giveaways, and special status, how can we look at the other end to unleash the tremendous economic power in the hands of the consumer of the arts so that they are choosing, determining, and paying for what you want to produce?
Mr. Luc Chatelain: Agreed. I'm trying to answer the question. My colleagues are welcome to add to my answer if they wish.
I think we can use Quebec as an example; it's a market I obviously know better than any other in Canada. In Quebec, things are a little different than they are elsewhere in the country—by far the most French-language broadcasts seen by Quebec audiences are in fact produced in Quebec. These Quebec-made programs reflect their audiences' Quebec identity, and are a relatively new phenomenon.
Some 10 or 15 years ago, it was programs like Dallas and Dynasty that got the highest ratings in Quebec, as they did elsewhere. As you have just said, the U.S. TV industry had so much clout that these shows, which were aired to audiences whose identity was as specific as it is in Canada and Quebec, still became very popular with audiences.
But as we were saying earlier, things have changed over the past few years. These programs which have been instituted have made it possible for us to use high-quality TV shows that compare to U.S.-made shows and afford Quebeckers access to broadcasting that reflects their own identity and promotes their own values. Moreover, as a result of the economic power these support programs generate, our shows now compare to U.S.-made shows in terms of economics, budgets and quality.
Mr. Raymond Bréard (Chief Executive Officer, Association des producteurs de films et de télévision du Québec): With the mechanisms now in place, broadcasters and film distributors select productions on the basis of their assessment of demand. That is more or less how the economy works in general: you assess a product, test the market, then look for buyers. Broadcasters won't buy series if they know the ratings won't be good, or if they know most people won't like them.
I believe that is a good system. Government organizations, such as Telefilm Canada and Sodec, have also developed a certain amount of expertise. In general, we believe the selection mechanism works well and reflects public tastes.
Mr. Luc Chatelain: I should add that in Canada you simply cannot produce a show solely on the basis of subsidies, grants and tax credits. It cannot be done. If you want to produce a show, you need what is called in the industry an originator: as Mr. Bréard was saying, that is a broadcaster or distributor who is committed to distributing or airing the production. Some subsidy mechanisms, such as those at Telefilm Canada, even incorporate reaching the largest possible audience as a criterion in the model or grid they use to assess their investments in some productions.
In general, the Canadian industry and some organizations managing it have implemented mechanisms to ensure that public money is invested in television productions that will reach the largest possible audience in Canada. Sometimes, there is a bonus—the production is also telecast outside Canada, and Canadian society has the benefit of seeing its work exposed abroad.
Mr. Paul Forseth: Am I out of time?
The Vice-Chairman (Mr. Nick Discepola): You may comment briefly, if you wish.
Mr. Paul Forseth: I will leave it at that then. Thank you.
The Vice-Chairman (Mr. Nick Discepola): Very well.
Mr. Yvan Loubier: I have a question for Mr. Morency, Mr. Champagne or Ms. Bégin.
As far as annual surpluses are concerned, there is a tradition in the area of federal public finances: any unexpected surplus is automatically used to pay down the debt.
In his 1998-99 budget, Mr. Martin said that he expected no surpluses for the following year, and no surpluses for two years thereafter. However, on March 31st, we had a $9 billion surplus. If we subtract the $3 billion dollar contingency reserve, that leaves us $6 billion net. Mr. Martin has applied the full amount of those $6 billion to pay down the debt.
Your projections agree with ours: this year, the surplus could exceed $10 billion dollars. We have assessed it at 12 billion. After taking out 3 billion for the contingency reserve, we still have 9 billion. Mr. Martin has projected a 5-billion dollar surplus for this year. This would leave $4 billion which, in addition to the contingency reserve, could be applied to bringing down the debt.
So a 7-billion dollar surplus is already projected for this year. Mr. Martin may not have put forward a detailed plan for debt reduction, but if we use the reasoning applied so far—$6 billion applied to the debt last fiscal year and $7 billion this fiscal year—we could apply over $12 billion to debt reduction next year. The surpluses Mr. Martin projects are not realistic. In general, the actual surplus tends to be higher than his projected figures.
I have not ventured to project surpluses for the next five years, but I have done it for the next two years. As you said just now, we are looking at a surplus of 8 billion for the first two quarters. That is well above the 5-billion surplus projected for the entire year.
What do you think of my analysis? Don't Mr. Martin's accounting tricks—I don't really like that word but I can't find another one—constitute an implicit and automatic debt-repayment plan?
Mr. Yves Morency: I remember how many previous budgets by Finance ministers were overly confident. We had got used to that, and we were the first to reprimand them for it.
The current Finance Minister, Mr. Martin, and other Canadian Finance ministers have now helped us become accustomed to a more cautious approach, with more prudent interest rate and economic growth projections.
That said, in the past few years, our projections also indicated that federal surpluses would be significantly higher than those put forward by Mr. Martin.
That is why we believe that a significant effort should be made to cut taxes, so that Canadians can now derive some benefit from all the sacrifices they have agreed to make over the years.
I am an economist, and I have seen how economic multipliers work: when the government spends one billion dollars or gives that one billion back to Canadians in the form of tax cuts, that billion quickly generates more money.
But we have to go further. Tax cuts must have a structural effect. When taxes are too high, we see anomalies developing. That doesn't come from us; recently, a number of organizations have said that high taxes in Canada caused some departures, if we don't want to use the word “flight”. We have heard statements to that effect by the presidents of Alcan, Pratt & Whitney and the Conference Board of Canada, as well as the Economic Institute of Montreal. So there is a problem which must be dealt with.
Here in Canada, we have people working in high technology, the bio-medical sector, health, and information technology. If we genuinely want to promote these sectors, in the next few years we will have to do more to cut taxes for all Canadians.
We agree with Mr. Martin in that he cautiously intends to set aside a certain amount as a contingency reserve. However, if there was a significant economic recession in two or three years, he would certainly need more than $3 billion to get the Canadian economy back on track. Depending on how severe the recession was, he would probably need 4 or $5 billion.
We certainly commend Mr. Martin for being cautious. In the late 1980s and early 1990s, we were discussing the combined effects of compound interest on the debt. The debt was increasing each year. Now, we will see it shrink. Paying the debt down by $16 billion over a few years will have a significant and recurrent impact on debt reduction.
We are not among those who believe more should be done to bring down the debt. In my view, the contingency reserve, a cautious fiscal measure, should be sufficient to bring us up to the G-7 or even the G-20 average. I would rather just talk about the G-7, because that is really where we belong.
The Vice-Chairman (Mr. Nick Discepola): One last comment.
Mr. Yvan Loubier: Mr. Chatelain, here is something I have some difficulty in understanding: you mentioned a tax credit that should account for 12% of production costs, yet you state that in fact, it accounts for only about 7% of production costs. How do you explain the difference between the projected rate and actual rate? Is there a cost assessment involved in determining production costs?
Mr. Luc Chatelain: There are two main factors involved here. To show you how the tax credit is calculated, I will take a very simple example—a production budget of $100. In our assessments of the 1994-95 program, on the basis of announcements made we expected the tax credit program to generate a tax credit of $12 for every budget of $100, somewhat like provincial tax credits work.
There are two factors that bring down actual tax credits. First, if the portion of production costs funded by a provincial tax credit or private contribution—for example a contribution from COGECO, a private fund that invests in productions, or Téléfilm Canada—is as high as $40, the cost of the film on which the tax credit calculation is based is only $60. So the tax credit is reduced; that effect is direct, automatic and quick.
Second, the tax credit calculation is also based on labour costs. In the calculation, labour costs cannot exceed 48% of the film's total budget. We said earlier that this was a highly labour-intensive industry, which generated many jobs. So if you restrict labour costs to 48% of the film's budget when it could in fact be higher, you again bring down your tax credit.
Mr. Yvan Loubier: Mr. Simard, I would like to ask you a quick question. When you went to the United States to sell your discovery and to do research, what was it that attracted you? The income, the fact that taxes in Canada were too high, or the research facilities that were available to you in the United States?
Dr. Jacques Simard (Director, Genetics Department, Centre de recherche du Centre hospitalier de l'Université Laval (Laval)): First, I did not do any work in the United States. What we in the scientific community are tending to do more and more is to forge strategic alliances.
Mr. Yvan Loubier: I see.
Dr. Jacques Simard: As for bio-medical research and development, competition is international. We owe it to ourselves to be the best, not only within Canada but internationally. At the beginning, in 1994-95, we did not have the technological bases that we wanted to establish. And at the time, the government was not willing to invest large amounts in research, something it is now quietly beginning to do. We have currently forged a strategic alliance with a company in Salt Lake City: part of the work will be done there, while they will inject considerable funding.
Mr. Yvan Loubier: Therefore, you relocated more than anything else because of the lack of research facilities.
The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Loubier. I'll come back to you later.
Go ahead, Mr. Cullen.
Mr. Roy Cullen: I want to thank all of the witnesses for their presentations to the committee today. I have two brief questions, one for Mr. Chatelain and one for Mr. Godbout.
Mr. Chatelain, when you look to the future of the film and television production industry in Quebec, do you foresee a role for the National Film Board? If so, what role would that be? If not, why not?
Ms. Suzanne D'Amours (Consultant, Association des producteurs de films et de télévision du Québec): Are you asking if the NFB has a role to play within the industry or within the Association des producteurs?
Mr. Roy Cullen: Within the industry as such.
Ms. Suzanne D'Amours: I see. The National Film Board has severely restricted its production operations. At the present moment, it is focussing more on animation, research and documentaries and on new production techniques. It is no longer involved in feature film productions, for example, or in commercial productions. These are now done by private sector companies in Quebec and elsewhere in Canada. The NFB is really not a major partner in the industry at this time.
Mr. Raymond Bréard: The NFB has, however, been a major industry player in the past. It created an entire industry: set designers, directors, producers. These talents cut their teeth at the NFB.
Now that an independent production industry is emerging, the NFB's role is waning. An independent, diversified and highly dynamic industry has emerged and the NFB's pioneering role has faded. During the 1950s and 1960s, the major films coming out of Quebec were for the most part NFB productions.
Mr. Roy Cullen: A number of foreign film companies come to Toronto and Vancouver to shoot their productions. Are Quebec City and Montreal also selected as venues?
Mr. Luc Chatelain: Yes indeed, there is a great deal of filming going on in these cities.
Mr. Roy Cullen: You're saying that there's a lot of activity going on.
Mr. Luc Chatelain: Absolutely. Have you ever tried to find a parking spot in Montreal? Film crews occupy many parking spaces and the situation can be quite unpredictable. As for the what the foreign film industry means to Montreal from a financial standpoint, I can't give you the exact figures, since I don't have them with me.
Ms. Suzanne D'Amours: I do.
Mr. Luc Chatelain: There is always competition between Montreal, Vancouver and Toronto.
Ms. Suzanne D'Amours: In Montreal, foreign film production accounts for $180 million, whereas Quebec film production represents $500 million.
Mr. Roy Cullen: Are you involved in these foreign productions or is your involvement limited to Canadian films?
Mr. Raymond Bréard: Foreign film companies that shoot in Quebec must as a rule comply with the same collective agreements as Canadian producers. While they may not be permanent members of the association, while production and filming is taking place, they become members by permission.
Mr. Roy Cullen: The government has to make some choices. If you were in its shoes, what industry would you prefer to support: the foreign film industry, or the Canadian film industry?
Mr. Raymond Bréard: I would prefer to lend my support to the Canadian film industry and to Canadian film companies. We're not opposed to tourism development or to economic activity, but it's important to encourage the Canadian industry first and foremost, a home-grown industry that is based in our own cities and that relies on Canadian producers.
Mr. Luc Chatelain: It comes down to a fundamental choice between cultural and economic promotion, on the one hand and, obviously, promoting the industry itself, on the other hand. I think both industries are deserving of support. It's like having to choose between the automobile and the forestry industry and that is a rather difficult choice to make. However, I have to say that the Canadian television industry, with a strong Canadian content, is not viable. This is also in answer to the question Mr. Forseth put to me earlier. We have a tradition in this country of producing Canadian television and film productions and, as Mr. Bédard mentioned earlier, back in the 1950s, NFB productions were fully supported by government funding.
By the 1990s, the realization had dawned that we could produce programming here in Canada that was as popular with audiences as American productions, but which, obviously, could not pay for themselves. We don't have the luxury of the size of the American market or of their export market.
Nevertheless, our industry has grown and is starting to achieve some success beyond our Canadian borders. The Canadian industry is now able to produce Canadian programming for export outside the country. An entire infrastructure has been built up around the industry: technical workers, companies, film studios, camera operators and so forth. It's becoming quite a large industry. That's what I was talking about earlier when I said it was hard to find a parking spot when a film crew was on location in downtown Montreal. The industry is supported and maintained by this extensive infrastructure.
Mr. Raymond Bréard: We must preserve our Canadian industry because it is a measure of our industry's and of our economy's stability. Our infrastructure services are very vulnerable when it comes to shooting foreign films. All of a sudden, there may be a flood of work for industry people, but a range of factors determine whether or not a film will be shot in Montreal or somewhere else. By having a stable industry in our own country, workers are assured of some measure of job security.
Mr. Roy Cullen: Thank you very much.
Mr. Godbout, I can appreciate the importance of biotechnologies and genomics research because the Groupe de santé MDS, which is very active in this field, is based in my riding.
If our government were to decide to support your proposal, which programs could be of assistance to you? Possibly those programs administered by Technology Partnerships Canada or by the Canadian Foundation for Innovation? Or, are you looking to a new program to be created?
Mr. Martin Godbout: First, you will hear on Thursday from the VP of corporate development of MDS, the second aspect of Jacques Simard's research. They are looking to take back the licences from Myriad.
As for the other organizations, the Medical Research Council, NSERC, the social sciences council, Canada Foundation for Innovation, the concept of Genome Canada is complementary to what already exists. If you are a scientist, you have to apply to these agencies, these granting councils, because you have a hypothesis and you want the research funded. In the case of Genome, it's a technology platform that requires scientists like Dr. Simard to generate large amounts of data.
Coming to back to Mr. Loubier's question, one of the reasons Jacques collaborates with Myriad is because we couldn't get in Canada at that time—that's less than two years ago—the large-scale capacity to generate data.
Let me give you an analogy; it is very important, because sometimes we see it better another way. If you're an astronomer and you would like to do the science of astronomy, you need to work with a telescope.
If you have access to a telescope that allows you to view Lac Mégantic from Montreal, then the moon will probably appear larger to you as well, but that won't make you any more competitive internationally. What you want is to be able to compete with the Americans, the Japanese and the French, and to have access to the Hubble space telescope.
The genomics research centres that we are proposing involve telescopes. These research centres will be accessible to scientists like Dr. Simard and to researchers working in federal laboratories or in the industry. These centres will be places where people can collect and analyze data. Unfortunately, however, Canada is not competitive because we don't yet have a telescope on par with this particular one.
The Vice-Chairman (Mr. Nick Discepola): Go ahead, Mr. Galloway.
Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman. I have a question for Ms. Nguyen. I am not quite certain I understood what she said.
People move from one location to another in their jobs for various reasons. Sometimes it's to have a job, and sometimes it's because their employer says they must. Sometimes people move several times in a year for work. Are you looking for a uniform set of rules? The red flag that comes up for me is if you're working in Quebec City and your employer wants you in Vancouver, are you looking for a tax break for that? At some point, isn't it incumbent upon the employer to ensure that whatever the implications of a move might be, they're going to pay for it?
Ms. Thi Nguyen: The objective of the employer, acting as a good citizen, is that they want to make sure that when they ask an employee to move to a higher housing-cost area, or if the employee incurs out-of-pocket expenses or a loss on sale, these expenses will be reimbursed.
Since the government, through the 1998 federal budget, imposed taxes on those reimbursements, either the corporation passes the tax liability on to individuals, which then makes it extremely difficult for employees to accept the move, or if the corporation absorbs these costs, it will make them much less competitive as compared to other corporations in the U.S. Therefore, we are simply asking for minor tax breaks so that it allows some tax relief to individuals who now have to take or to assume those tax liabilities as a result of the 1998 federal budget.
Mr. Roger Gallaway: What do you say to the person who perhaps has a home base, if I can call it that, and moves three times in a year because of the nature of what they do? Technically they're never moving, but they are in fact working elsewhere.
Ms. Thi Nguyen: We differentiate between those who elect to move to take advantage of business opportunities, and therefore have a choice of when or where they want to relocate, and those who are being forced by the employer to move just to maintain the job. Those moves can happen once a year or once every two or three years.
The government imposed taxes on these reimbursements, which the employers give to individuals when they relocate. They simply assist employees to keep them.
Mr. Roger Gallaway: Okay.
I have a question for Mr. Chatelain. What percentage of films produced in Quebec are actually produced for television as opposed to those produced for the big screen? I'm not that familiar with the film market, but in Quebec, the market is rather limited. Do you export most of your productions? I'm talking in this case about French-language productions.
Mr. Luc Chatelain: We weren't prepared for that question. Do you have any figures on that, Suzanne?
Ms. Suzanne D'Amours: With respect to made-for-television programming, virtually 100 per cent of those programs are shown on television in Quebec. Obviously, it's more difficult to export French-language programs to other foreign markets, but all Canadian productions are in fact released in Canada.
I don't know if that answers your question, but all Canadian productions, whether English language or French language, are released in Canada. As for the percentage of these French-language productions that are exported, I don't have the exact figures. The figures we have are for all exports, both English language and French language combined.
The Vice-Chairman (Mr. Nick Discepola): Mr. Bréard.
Mr. Raymond Bréard: There was a major phenomenon that occurred in Quebec. In the past, French-language productions were produced for both the television and film industry. Now, more and more companies are producing for the export market, which means they are producing works in English for that market. This is the result of businesses that have expanded, in terms of both volume and stature. This situation has called into question budget envelopes, because Telefilm's Francophone budget envelope was basically destined for Quebec. Now we are seeing growth in English-language first-run productions destined for the export market. This is a new phenomenon.
The Vice-Chairman (Mr. Nick Discepola): Thank you very much.
Go ahead, Mr. Nystrom.
Mr. Lorne Nystrom: I have a short question for Mr. Morency.
The Vice-Chairman (Mr. Nick Discepola): Politicians' questions are always short.
Mr. Lorne Nystrom: You're right. You made no mention of the GST. According to recent surveys, Canadian want the GST to be reduced before anything else is done. Approximately 54 or 55 per cent of Canadians stated that they viewed this as a top priority. Therefore, why have you chosen to make a recommendation that is totally out of sync with what the Canadian public, and your membership, wants?
Mr. Yves Morency: If our economy mirrored that of European markets more closely... When the federal government introduced the GST, we wanted the rate to be even higher. However, we admit that this tax is regressive and we believe even more generous credits should be brought in.
Earlier, one of the panelists alluded to meals. A person who is well-off financially won't eat more than three or four meals a day simply because he or she has more money. Nevertheless, there are still some sectors that are not taxed at all and this needs to be taken into consideration. That's why we didn't broach the whole issue of the GST.
As far as we're concerned, the GST is a tax that allows taxpayers to choose between consuming a particular good or saving their money, so that, in our opinion the GST is not..Taxes are always unpleasant, but the GST is not necessarily as bad a tax as it's made out to be. We would prefer to see cuts to personal and corporate income taxes before cuts to the GST.
The Vice-Chairman (Mr. Nick Discepola): Do you have another question?
Mr. Lorne Nystrom: No.
The Vice-Chairman (Mr. Nick Discepola): Fine.
Mr. Scott Brison: Thank you, Mr. Chairman, and thank you to each of you for your presentations.
As a Progressive Conservative, I sometimes wonder where all these fans of the GST were in 1993. They were hard to find.
Voices: Oh, oh!
Mr. Scott Brison: In any case, I'd like to actually focus my questions on the genomics. A couple of years ago, when the e-commerce revolution really began, Canada and the U.S. were roughly at the same place. The figure I was then hearing was that Canada was a year behind, and the most recent figures are that we're eighteen months to two years behind in the e-commerce revolution that is going to represent about $1.5 trillion worth of commerce in 2003.
Similarly, I see this genomics revolution as being perhaps even more important in terms of its impact, particularly on the health care side and the way it will potentially revolutionize health care. As such, I think it's very important that we get our heads wrapped around it, so I have a couple of questions.
On the U.S. position relative to ours, both in terms of a private sector environment and in the degree to which the public sector is supportive, I'm interested in this from an infrastructure perspective. What's the cost of what you're suggesting? I may have missed that, but I don't know what the amount of the investment is you're suggesting, or whether you have compared it with the potential cost savings, for instance, on the health care side in the future. That strikes me as making it eminently more tenable, particularly from the preventive side.
Thirdly, from an economic development perspective, with the death of distance as a determinant in the cost of telecommunications, correct me if I'm wrong, but couldn't a lot of the research and the people be dispersed in various parts of the country? For instance, I represent a riding from Nova Scotia, the cradle of higher education in Canada. The president of Acadia University is Dr. Kelvin Ogilvie, who has a background of some renown in genetics. Would it not be possible to spread this out and in some way create an engine for economic development, as well as one for excellence in this area? That strikes me as something that should be explored, so I'd appreciate your feedback on those areas.
Mr. Martin Godbout: Thank you for your comment.
First, there is an analogy about e-commerce. We are effectively about a year to a year and a half behind what the Americans are doing. In genomics, I would say we can be compared to the Americans, and there is a reason for that. I'm talking about industry, because if you refer to e-commerce, there is no fundamental research being done on campuses that compares to what is done in the industry.
E-commerce has a six-month lag. If you don't have your products in the next six months, you're out. In biotechnology, especially in health, we are playing on time. It takes about twelve years to get a product on the market. If you are very lucky, it will take you eight years. And these are not my figures; these are figures coming from Price Waterhouse Cooper or or KPMG benchmarking. To put a product on the market in health costs $700 million, so that's a different industry.
I'm a scientist by training, and I'm also a venture capitalist. I've been involved in venture capital health care for the last seven years. Just to give you a figure, in the Quebec area—and that's the province of Quebec—venture capital will invest over $1 billion in genomics over the next five years. It's a tremendous industry, and there are a lot of good incentives, not to mention the Caisse de dépôt et placement, Innovatech, or Biocapital venture capital. And those are their figures, not something that we invent. Those are really the facts.
Relative to the U.S. position, we are very competitive in biotechnology. I can tell you that in the last three years we were able to attract seven U.S. companies to Montreal in order to establish themselves here. They don't come only for tax credits. If you don't have the science, there is no reason to come. It's not a question of money here. My old mentor in venture capital in San Diego always told me to always put science first. If the Americans are coming, it's because of McGill, the Université de Montréal, the University of Toronto, or UBC, the University of British Columbia. Those are the reasons for why they are coming. And please don't quote me on those, because there is excellent science across Canada.
We conducted a bibliometric survey before doing Genome Canada. With bibliometric surveys, we look at the impact of Canadian scientists worldwide. Just to give you a figure, over 1995, 1996, and 1997—three years—Canadians published about 100,000 publications overall. All sectors of science were included, and more than 13,000 were in genomics. We are highly competitive in the world, but what we need is capacity. We need to telescope. We need to do bright science.
On the cost and the impacts, I will refer to your second question on health. In the pharmaceuticals industry, 50% of the technology that they develop to produce new drugs will be through genomics in the next five years. They are taking a tremendous turn on their technology platform. The way we used to do drugs was by trial and error, if you will, or by chemical synthesis. Now it will be.... As an example, I will refer to the Jacques Simard story.
Taxol is the top-selling drug in the world right now, at $1.8 billion for breast cancer. In seven of the women affected with the genes that Jacques Simard discovered, there were no effects due to taxol. What we will develop in the next four or five years are drugs that are individualized instead of having a drug for the disease. The consequence of that is that our medicine will be much more preventive and predictive than it is right now. We'll save enormously on costs.
I do have a cartoon slide. What we do right now is we diagnose, we treat, and we monitor. But what the industry will do—and this is not in fifteen years from now, it's in less than five years—-is have drugs that are tailored to the individual instead of the disease. You'll be more predictive, you'll save on costs, and you won't have to develop drugs in the $700-million range. You'll have to develop drugs in the $200-million to $300-million market. So it's a tremendous task for the industry.
We can also say the same applies for environment, and the same applies for agrifood. Genome Canada is not afraid to talk about genetically modified organisms. There is a lot of cost saving by doing that.
Finally, on your question of relations among scientists across Canada, the largest task of Genome Canada was to get scientists from health, agriculture, environment, forestry, and fisheries sitting together with the provinces for financing. We have six provinces and the federal government behind Genome Canada right now. We also have scientists from universities, scientists from federal labs, and scientists from industry. My role for the last four months was to coordinate and orchestrate these networks among scientists. And, yes, there is a lot of collaboration among Canadian scientists from Dartmouth, Nova Scotia, working in bio-informatics with scientists from McGill and other scientists from Alberta.
I don't want to mislead you or not give you all the names, but just in bio-informatics there are thirteen universities working together right now to get connected. This is where the Canada Foundation for Innovation came in. It provided the infrastructure, but now we need a different level of infrastructure to help Canadian scientists to be competitive internationally.
Jacques did a great job, but what he didn't tell you is that there is a third gene that he has to work on. This time, we're trying to ensure that the work will be done in Canada instead of being done in collaboration,
like a strategic alliance with Myriad. However, instead of forging strategic alliances and losing benefits... He's a winner because he has to be the first Canadian or the first scientist in the world to have his work published. He receives grants from funding agencies, but as for benefits,
the ones you referred to, like the costs and so on.... When you hear on Thursday that we need to pay now to have access to his technology, it's better to do it alone.
The Vice-Chairman (Mr. Nick Discepola): One final brief question, Mr. Brison.
Mr. Scott Brison: Thank you very much.
I'm awfully pleased that you're here in front of the finance committee representing what I believe to be a very sound case. That being the case, the wall you're going to run into at some point politically—and it's already occurring to some extent—is the questions people will have relative to ethics. Whatever you do, I would hope that the case is made to all parliamentarians, and that we start to get our collective head around this very important issue. I would hate to see politics be the natural enemy of good public policy in this sense. As a country, we can't afford to allow that to happen. It's happening in other areas. Even in the financial services sector, the last vestiges of Glass-Steagall were removed two weeks ago in the U.S., so we're now behind on the regulatory side. That has a lot to do with politics. In any case, we have to make sure all of us are on the same page.
The Vice-Chairman (Mr. Nick Discepola): Thank you. Would you care to respond, Mr. Godbout?
Mr. Martin Godbout: I'd make a very quick comment on the ethics laws and the social issues.
Dr. Bartha Knoppers, from the Université de Montréal, is the chairman of HUGO, the Human Genome Project. Genome Canada will address the question of genetically modified organisms. It's not black and white. There are pros and cons. But we will address the issues internationally in a very independent manner. There will be a tribune where you will be able to address those issues, and Canada is very well placed worldwide to address those questions.
Mr. Scott Brison: My interest really is in cloning more Tories.
Some hon. members: Oh, oh!
A voice: Heaven help us!
An hon. member: I thought we wanted to advance.
The Vice-Chairman (Mr. Nick Discepola): On that note, all that's left for me is to thank our panelists, on behalf of my colleagues, for their presentations. It won't be easy for us to make recommendations, because we have to take all of these different presentations into account, but I'm confident that in our final report, you'll find some comments that reflect your positions. It will be up to the Finance Minister to decide what to include, or not to include, in his next budget for the year 2000. So far, this committee has a good batting average. I believe we're batting .640 or something like that. We're not paid as well as the professional players batting only .300, but this proves that the Minister is mindful of your concerns. Many thanks again.
Colleagues, we are adjourned until 1 p.m. Thank you.